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Customer Capital

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  • Francois Gourio
  • Leena Rudanko

Abstract

Firms spend substantial resources on marketing and selling. Interpreting this as evidence of frictions in product markets, which require firms to spend resources on customer acquisition, this paper develops a search theoretic model of firm dynamics in frictional product markets. Introducing search frictions generates long-term customer relationships, rendering the customer base a state variable for firms, which is sluggish to adjust. This affects: the level and volatility of firm investment, sales, profits, value and markups, the timing of firm responses to shocks, and the relationship between investment and Tobin’s q. We document support for these predictions in firm-level data from Compustat, using cross-industry variation in selling expenses to quantify differences in the degree of friction across markets.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17191.

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Date of creation: Jul 2011
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Publication status: published as \Customer Capital" with Francois Gourio Review of Economic Studies, forthcoming
Handle: RePEc:nbr:nberwo:17191

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Citations

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Cited by:
  1. Takayuki Mizuno & Wataru Souma & Tsutomu Watanabe, 2014. "The Structure and Evolution of Buyer-Supplier Networks," UTokyo Price Project Working Paper Series 019, University of Tokyo, Graduate School of Economics.
  2. Pozzi, Andrea & Schivardi, Fabiano, 2012. "Demand or productivity: What determines firm growth?," CEPR Discussion Papers 9184, C.E.P.R. Discussion Papers.
  3. Larkin, Yelena, 2013. "Brand perception, cash flow stability, and financial policy," Journal of Financial Economics, Elsevier, vol. 110(1), pages 232-253.
  4. Allen Tran, 2013. "Customer Driven Establishment Dynamics and Allocative Efficiency," 2013 Meeting Papers 115, Society for Economic Dynamics.
  5. Frederico Belo & Xiaoji Lin & Maria Ana Vitorino, 2014. "Brand Capital and Firm Value," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 150-169, January.
  6. Costas Arkolakis, 2009. "A Unified Theory of Firm Selection and Growth," CESifo Working Paper Series 2679, CESifo Group Munich.
  7. Daniel P. Murphy, 2013. "Why are goods and services more expensive in rich countries? demand complementarities and cross-country price differences," Globalization and Monetary Policy Institute Working Paper 156, Federal Reserve Bank of Dallas.
  8. Philip King & Stephen Millard, 2014. "Modelling the service sector," Discussion Papers 1401, Centre for Macroeconomics (CFM).
  9. Takayuki Mizuno & Wataru Souma & Tsutomu Watanabe, 2014. "The Structure and Evolution of Buyer-Supplier Networks," CARF F-Series CARF-F-339, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  10. Gourio, Francois & Rudanko, Leena, 2014. "Can Intangible Capital Explain Cyclical Movements in the Labor Wedge?," Working Paper Series WP-2014-2, Federal Reserve Bank of Chicago.
  11. Jae Sim & Raphael Schoenle & Egon Zakrajsek & Simon Gilchrist, 2013. "Inflation Dynamics During the Financial Crisis," 2013 Meeting Papers 826, Society for Economic Dynamics.
  12. Volker Tjaden, 2013. "Foreign Customer Accumulation and Export Dynamics," Bonn Econ Discussion Papers bgse06_2013, University of Bonn, Germany.
  13. King, Philip & Millard, Stephen, 2014. "Modelling the service sector," Bank of England working papers 500, Bank of England.
  14. Lu Zhang & Chen Xue & Frederico Belo, 2012. "Accounting for Value," 2012 Meeting Papers 1128, Society for Economic Dynamics.
  15. Mizuno, Takayuki & Souma, Wataru & Watanabe, Tsutomu, 2014. "The Structure and Evolution of Buyer-Supplier Networks," Working Paper Series 27, Center for Interfirm Network, Institute of Economic Research, Hitotsubashi University.
  16. Luigi Paciello & Andrea Pozzi & Nicholas Trachter, 2013. "Price Setting with Customer Retention," EIEF Working Papers Series 1328, Einaudi Institute for Economics and Finance (EIEF), revised Nov 2013.

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