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Customer Markets and Price Sensitivity

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  • Nishimura, Kiyohiko G

Abstract

This paper investigates the behavior of prices in customer markets of the Phelps-Winter type under uncertainty. It is shown that the responsiveness of prices to short-run demand and cost changes depends crucially on whether the marginal customer is price risk averse or price risk loving. If he is price risk averse (loving), then the customer market price is less (more) flexible than the monopoly price. Competition makes the customer market price more rigid (flexible) if the marginal customer is price risk averse (loving). The scope of rigid customer market prices is wide if near-rational behavior of customers and the adjustment cost in the consumption process are taken into consideration. Copyright 1989 by The London School of Economics and Political Science.

Suggested Citation

  • Nishimura, Kiyohiko G, 1989. "Customer Markets and Price Sensitivity," Economica, London School of Economics and Political Science, vol. 56(222), pages 187-198, May.
  • Handle: RePEc:bla:econom:v:56:y:1989:i:222:p:187-98
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    Cited by:

    1. Nishimura, Kiyohiko G. & Ohkusa, Yasushi & Ariga, Kenn, 1999. "Estimating the mark-up over marginal cost: a panel analysis of Japanese firms 1971-1994," International Journal of Industrial Organization, Elsevier, vol. 17(8), pages 1077-1111, November.
    2. Ariga, Kenn & Ohkusa, Yasushi & Nishimura, Kiyohiko G., 1999. "Determinants of Individual-Firm Markup in Japan: Market Concentration, Market Share, and FTC Regulations," Journal of the Japanese and International Economies, Elsevier, vol. 13(4), pages 424-450, December.
    3. Markus Pasche, 1997. "Markup Pricing and Demand Uncertainty," Working Paper Series B 1997-08, Friedrich-Schiller-Universität Jena, Wirtschaftswissenschaftliche Fakultïät, revised 01 Jun 1998.

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