This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Market Share and Price Rigidity

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Isaac Kleshchelski
Nicolas Vincent () (IEA, HEC Montréal)
Abstract

Survey evidence shows that the main reason why .rms keep prices stable is that they are concerned about losing customers or market share. We construct a model in which .rms care about the size of their customer base. Firms and customers form long-term relationships because consumers incur costs to switch sellers. In this environment, .rms view customers as long-lived assets. We use a general equilibrium framework where industries and .rms are buffeted by idiosyncratic marginal cost shocks. We obtain three main results. First, cost pass-through into prices is incomplete. Second, the degree of pass-through is an increasing function of the persistence of cost shocks. Third, there is a non-monotonic relationship between the size of switching costs and the rate of pass-through. In addition, we characterize the heterogenous response across industries to marginal cost shocks. The implications of our model are consistent with empirical evidence.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www2.hec.ca/iea/cahiers/2008/iea0801_nvincent.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 08-01.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 52 pages
Date of creation: May 2007
Date of revision:
Handle: RePEc:iea:carech:0801

Contact details of provider:
Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
Phone: (514) 340-6463
Fax: (514) 340-6469
Email:
Web page: http://www2.hec.ca/iea/
More information through EDIRC

Order Information:
Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
Email:

For technical questions regarding this item, or to correct its listing, contact: (Patricia Power).

Related research
Keywords: Price Rigidity; Market Share; Customer Relations; Real Rigidities.;

Find related papers by JEL classification:
E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Anne Gron & Deborah L. Swenson, 2000. "Cost Pass-Through in the U.S. Automobile Market," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 316-324, May. [Downloadable!] (restricted)
  2. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    Other versions:
  3. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December. [Downloadable!] (restricted)
  4. Morten Ravn & Stephanie Schmitt-Grohe & Martin Uribe, 2006. "Deep Habits," Review of Economic Studies, Blackwell Publishing, vol. 73(1), pages 195-218, 01. [Downloadable!] (restricted)
    Other versions:
  5. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June. [Downloadable!] (restricted)
    Other versions:
  6. Renner, Elke & Tyran, Jean-Robert, 2004. "Price rigidity in customer markets," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 575-593, December. [Downloadable!] (restricted)
    Other versions:
  7. Stiglitz, J E, 1979. "Equilibrium in Product Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 69(2), pages 339-45, May. [Downloadable!] (restricted)
  8. Woglom, Geoffrey, 1982. "Underemployment Equilibrium with Rational Expectations," The Quarterly Journal of Economics, MIT Press, vol. 97(1), pages 89-107, February. [Downloadable!] (restricted)
  9. Álvarez, L. & Dias, D. & Dhyne, E. & Hoffmann, J. & Jonker, N. & Le Bihan, H. & Lünnemann, P. & Rumler, F. & Veronese, G. & Vilmunen, J., 2005. "Price Setting in the Euro Area: Some Stylized Facts from Individual Consumer Price Data," Documents de Travail 136, Banque de France. [Downloadable!]
    Other versions:
  10. Michael Dotsey & Robert G. King, 2005. "Implications of state-dependent pricing for dynamic macroeconomic models," Working Papers 05-2, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  11. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2005. "Large Devaluations and the Real Exchange Rate," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 742-784, August.
    Other versions:
  12. Moshe Kim & Doron Kliger & Bent Vale, 2001. "Estimating Switching Costs and Oligopolistic Behavior," Center for Financial Institutions Working Papers 01-13, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  13. Claudia Kwapil & Josef Baumgartner & Johann Scharler, 2005. "The price-setting behavior of Austrian firms - some survey evidence," Working Paper Series 464, European Central Bank. [Downloadable!]
    Other versions:
  14. Jose Manuel Campa & Linda S. Goldberg, 2002. "Exchange Rate Pass-Through into Import Prices: A Macro or Micro Phenomenon?," NBER Working Papers 8934, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  15. Etienne Gagnon, 2006. "Price Setting during Low and High Inflation: Evidence from Mexico," 2006 Meeting Papers 300, Society for Economic Dynamics. [Downloadable!]
    Other versions:
  16. Mikhail Golosov & Robert E. Lucas, 2003. "Menu Costs and Phillips Curves," NBER Working Papers 10187, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  17. Ireland, Peter N., 1998. "Customer Flows, Countercyclical Markups, and the Output Effects of Technology Shocks," Journal of Macroeconomics, Elsevier, vol. 20(4), pages 649-664, October. [Downloadable!] (restricted)
  18. Simon Hall & Mark Walsh & Anthony Yates, . "How do UK companies set prices?," Bank of England working papers 67, Bank of England. [Downloadable!]
  19. Hans H.Bauer & Maik Hammerschmidt & Matthias Braehler, 2004. "The Customer Lifetime Value Concept And Its Contribution To Corporate Valuation," Microeconomics 0402006, EconWPA. [Downloadable!]
  20. Robert Amano & Scott Hendry, 2003. "Inflation persistence and costly market share adjustment: a preliminary analysis," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 134-146 Bank for International Settlements. [Downloadable!]
  21. Altig, David & Christiano, Lawrence & Eichenbaum, Martin & Lindé, Jesper, 2004. "Firm-Specific Capital, Nominal Rigidities and the Business Cycle," Working Paper Series 176, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
    Other versions:
  22. Emi Nakamura & Jon Steinsson, 2005. "Price Setting in a Forward-Looking Customer Market," Macroeconomics 0509010, EconWPA. [Downloadable!]
  23. David Neumark & Steven A. Sharpe, 1989. "Market structure and the nature of price rigidity: evidence from the market for consumer deposits," Finance and Economics Discussion Series 52, Board of Governors of the Federal Reserve System (U.S.).
    Other versions:
  24. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
    Other versions:
  25. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2005. "Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 313-38, April.
    Other versions:
  26. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
  27. Laurent Baudry & Hervé Le Bihan & Patrick Sevestre & Sylvie Tarrieu, 2004. "Price rigidity. Evidence from the French CPI micro-data," Working Paper Series 384, European Central Bank. [Downloadable!]
    Other versions:
  28. Borenstein, Severin & Cameron, A Colin & Gilbert, Richard, 1997. "Do Gasoline Prices Respond Asymmetrically to Crude Oil Price Changes?," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 305-39, February.
    Other versions:
  29. Laurence Ball & David Romer, 1990. "Real Rigidities and the Non-Neutrality of Money," NBER Working Papers 2476, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  30. Lawrence J. Christiano & Martin Eichenbaum & Charles L. Evans, 2005. "Nominal Rigidities and the Dynamic Effects of a Shock to Monetary Policy," Journal of Political Economy, University of Chicago Press, vol. 113(1), pages 1-45, February.
    Other versions:
  31. Peter J. Klenow & Jonathan L. Willis, 2006. "Real rigidities and nominal price changes," Research Working Paper RWP 06-03, Federal Reserve Bank of Kansas City. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David M. Arseneau & Sanjay K. Chugh, 2007. "Bargaining, fairness, and price rigidity in a DSGE environment," International Finance Discussion Papers 900, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. David M. Arseneau & Sanjay K. Chugh, 2008. "Optimal fiscal and monetary policy in customer markets," International Finance Discussion Papers 919, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  3. Morten Ravn & Stephanie Schmitt-Grohe & Martin Uribe, 2008. "Incomplete Cost Pass-Through Under Deep Habits," Economics Working Papers ECO2008/06, European University Institute. [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? Data contributors to RePEc receive monthly emails with details about downloads and abstract views of their works.

This page was last updated on 2009-11-26.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.