Advanced Search
MyIDEAS: Login

Customer Relationship and Sales

Contents:

Author Info

  • Shouyong Shi

Abstract

I construct a search model to formalize the intuitive idea that sellers hold sales to attract buyers and build customer relationships. The market consists of a large number of buyers and sellers. All sellers sell a homogeneous good and all buyers have the same publicly known valuation of the good. Buyers know the terms of trade offered by sellers before choosing which seller to visit. A buyer is related to a seller if the buyer just bought a good from the seller and the relationship is broken if the buyer fails to continue to buy from the seller. Sellers are restricted to offer the same price to all buyers, but they are allowed to give priority to their related buyers. I prove that there is an equilibrium in which a seller gives priority to the related buyer and a buyer makes repeat purchases from the related seller. In the equilibrium, a seller who does not have a related buyer posts a low (sale) price to attract the buyers who are unrelated to any seller and, once the seller is related to a buyer after a trade, the seller will post a high (regular) price to sell only to the related buyer. The fraction of related sellers is endogenous in the equilibrium. I calibrate the steady state of the model to the data and find that the sale price represents a sizable markdown, and the regular price a sizable markup, on the marginal cost. With the calibrated model, I examine comparative statics and dynamics of the equilibrium with respect to changes in the cost of and the demand for the good.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. 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://www.economics.utoronto.ca/public/workingPapers/tecipa-429.pdf
File Function: Main Text
Download Restriction: no

Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number tecipa-429.

as in new window
Length: 49 pages
Date of creation: 11 May 2011
Date of revision:
Handle: RePEc:tor:tecipa:tecipa-429

Contact details of provider:
Postal: 150 St. George Street, Toronto, Ontario
Phone: (416) 978-5283

Related research

Keywords: Sales; Customer relationship; Directed search;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

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.:
as in new window
  1. Peter J. Klenow & Oleksiy Kryvtsov, 2005. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," NBER Working Papers 11043, National Bureau of Economic Research, Inc.
  2. Emi Nakamura & Jón Steinsson, 2008. "Five Facts about Prices: A Reevaluation of Menu Cost Models," The Quarterly Journal of Economics, MIT Press, vol. 123(4), pages 1415-1464, November.
  3. Shantanu Dutta & Mark Bergen & Daniel Levy, 2002. "Price Flexibility in Channels of Distribution: Evidence from Scanner Data," Working Papers 2002-10, Department of Economics, Bar-Ilan University.
  4. Manolis Galenianos & Philipp Kircher, 2005. "Directed Search with Multiple Job Applications," PIER Working Paper Archive 05-022, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  5. Shouyong Shi, 2006. "Directed Search for Equilibrium Wage-Tenure Contracts," Working Papers tecipa-260, University of Toronto, Department of Economics.
  6. Peters, Michael, 1984. "Bertrand Equilibrium with Capacity Constraints and Restricted Mobility," Econometrica, Econometric Society, vol. 52(5), pages 1117-27, September.
  7. Salop, S & Stiglitz, J E, 1982. "The Theory of Sales: A Simple Model of Equilibrium Price Dispersion with Identical Agents," American Economic Review, American Economic Association, vol. 72(5), pages 1121-30, December.
  8. Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
  9. Francisco M. Gonzalez & Shouyong Shi, 2008. "An Equilibrium Theory of Learning, Search and Wages," Working Papers tecipa-328, University of Toronto, Department of Economics.
  10. Shi, Shouyong, 2002. "A Directed Search Model of Inequality with Heterogeneous Skills and Skill-Based Technology," Review of Economic Studies, Wiley Blackwell, vol. 69(2), pages 467-91, April.
  11. Bagwell, Kyle, 1987. "Introductory Price as a Signal of Cost in a Model of Repeat Business," Review of Economic Studies, Wiley Blackwell, vol. 54(3), pages 365-84, July.
  12. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
  13. Robert Shimer, 2001. "The Assignment of Workers to Jobs In an Economy with Coordination Frictions," NBER Working Papers 8501, National Bureau of Economic Research, Inc.
  14. Montgomery, James D, 1991. "Equilibrium Wage Dispersion and Interindustry Wage Differentials," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 163-79, February.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:tor:tecipa:tecipa-429

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (RePEc Maintainer).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.