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Firm dynamics and pricing under customer capital accumulation

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  • Roldan-Blanco, Pau
  • Gilbukh, Sonia

Abstract

In a search model of firm dynamics, customer accumulation is shown to affect the lifecycle of firms and the dynamics of markups in response to aggregate demand shocks. In the model, sellers of different sizes and productivities post dynamic pricing contracts to strike a balance between attracting new customers and exploiting pre-existing ones. Calibrated using establishment-level and micro-pricing data from the U.S. retail sector, the model provides a quantitatively good fit to the lifecycle and cross-sectional properties of retail establishments. Further, the model predicts that markups are procyclical to aggregate demand shocks, with a larger contribution by small sellers.

Suggested Citation

  • Roldan-Blanco, Pau & Gilbukh, Sonia, 2021. "Firm dynamics and pricing under customer capital accumulation," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 99-119.
    • Handle: RePEc:eee:moneco:v:118:y:2021:i:c:p:99-119
    DOI: 10.1016/j.jmoneco.2020.01.011
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    Cited by:

    1. Leo Kaas & Bihemo Kimasa, 2021. "Firm Dynamics With Frictional Product And Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(3), pages 1281-1317, August.
    2. Laurent Cavenaile & Pau Roldan-Blanco, 2021. "Advertising, Innovation, and Economic Growth," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 251-303, July.

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    More about this item

    Keywords

    Customer capital; Directed search; Firm dynamics; Dynamic contracts;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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