Pricing in a Customer Market
In standard pricing models, movements in demand are partially offset by price responses. In a customer market, however, price markups may decrease with high demand. Thus, price may magnify, rather than stabilize, demand movements. The author considers a monopolist selling a good of which first-time consumers are uncertain. Repeat customers know that the product works. The monopolist trades the objectives of exploiting past customers and attracting new ones. In a period with many new potential customers, the monopolist gives more weight to attracting and lowers its markup. Last, the author examines some evidence on whether expansions are periods with disproportionately many new customers. Copyright 1989, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
Volume (Year): 104 (1989)
Issue (Month): 4 (November)
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