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Survey Evidence on Customer Markets

  • Ali Choudhary
  • Thorlakur Karlsson
  • Gylfi Zoega

This paper uses survey data from Iceland on 884 firms to test for the theory of customer markets proposed by Phelps and Winter (1970) and Okun (1981). The results provide support for the customer market theory in that managers agree that customers are valuable to firms - they rank them second only to employees - and they use various means of augmenting and retaining their customer base, such as advertising. Surprisingly, however, price setting appears not to be an important ploy for attracting and retaining customers. In this we confirm the earlier results of Lye and Sibly (1994) using Australian data. Instead, advertising and direct contact with customers are listed as significantly more important.

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Paper provided by Department of Economics, Central bank of Iceland in its series Economics with number wp45.

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Date of creation: Nov 2009
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Handle: RePEc:ice:wpaper:wp45
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  1. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May.
  2. McDonald, Ian M, 1990. "The Setting of Retail Prices in a Customer Market," The Economic Record, The Economic Society of Australia, vol. 66(195), pages 322-28, December.
  3. Ireland, Peter N., 1998. "Customer Flows, Countercyclical Markups, and the Output Effects of Technology Shocks," Journal of Macroeconomics, Elsevier, vol. 20(4), pages 649-664, October.
  4. Martins, Fernando, 2005. "The price setting behaviour of Portuguese firms: evidence from survey data," Working Paper Series 0562, European Central Bank.
  5. Loupias, C. & Ricart, R., 2004. "Price Setting in France: new Evidence from Survey Data," Working papers 120, Banque de France.
  6. Ravn, Morten O & Schmitt-Grohé, Stephanie & Uribe, Martín, 2004. "Deep Habits," CEPR Discussion Papers 4269, C.E.P.R. Discussion Papers.
  7. Emi Nakamura & Jon Steinsson, 2005. "Price Setting in a Forward-Looking Customer Market," Macroeconomics 0509010, EconWPA.
  8. Greenwald, Bruce & Stiglitz, Joseph E & Weiss, Andrew, 1984. "Informational Imperfections in the Capital Market and Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 74(2), pages 194-99, May.
  9. Beggs, Alan & Klemperer, Paul, 1990. "Multi-Period Competition with Switching Costs," CEPR Discussion Papers 436, C.E.P.R. Discussion Papers.
  10. repec:att:wimass:9116 is not listed on IDEAS
  11. John Haltiwanger & Joseph E. Harrington Jr., 1991. "The Impact of Cyclical Demand Movements on Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 89-106, Spring.
  12. Basu, S., 1993. "Intermediate Goods and Business Cycles: Implications for Productivity and Welfare," Papers 93-23, Michigan - Center for Research on Economic & Social Theory.
  13. Solon, Gary & Barsky, Robert & Parker, Jonathan A, 1994. "Measuring the Cyclicality of Real Wages: How Important Is Composition Bias?," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 1-25, February.
  14. Julio J. Rotemberg & Michael Woodford, 1991. "Markups and the Business Cycle," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 63-140 National Bureau of Economic Research, Inc.
  15. George A. Akerlof, 2007. "The Missing Motivation in Macroeconomics," American Economic Review, American Economic Association, vol. 97(1), pages 5-36, March.
  16. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
  17. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2003. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," American Economic Review, American Economic Association, vol. 93(1), pages 15-37, March.
  18. Judith A. Chevalier & David S. Scharfstein, 1994. "Capital Market Imperfections and Countercyclical Markups: Theory and Evidence," NBER Working Papers 4614, National Bureau of Economic Research, Inc.
  19. Lye, J N & Sibly, H, 1994. "Testing for Pricing Asymmetries in Customer Markets," Australian Economic Papers, Wiley Blackwell, vol. 33(63), pages 239-52, December.
  20. M. Ali Choudhary & J. Michael Orszag, 2007. "Costly customer relations and pricing," Oxford Economic Papers, Oxford University Press, vol. 59(4), pages 641-661, October.
  21. Simon Hall & Mark Walsh & Anthony Yates, 1997. "How do UK companies set prices?," Bank of England working papers 67, Bank of England.
  22. Josef Baumgartner & Claudia Kwapil & Johann Scharler, 2005. "The Price-Setting Behavior of Austrian Firms: Some Survey Evidence," Working Papers 100, Oesterreichische Nationalbank (Austrian Central Bank).
  23. Shea, John, 1993. "Do Supply Curves Slope Up?," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 1-32, February.
  24. Lal, Rajiv & Matutes, Carmen, 1994. "Retail Pricing and Advertising Strategies," The Journal of Business, University of Chicago Press, vol. 67(3), pages 345-70, July.
  25. Bhaskar, V & Machin, Stephen & Reid, Gavin C, 1993. "Price and Quantity Adjustment over the Business Cycle: Evidence from Survey Data," Oxford Economic Papers, Oxford University Press, vol. 45(2), pages 257-68, April.
  26. Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
  27. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-46, July.
  28. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2001. "Micro Foundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Working Paper Series 128, Sveriges Riksbank (Central Bank of Sweden).
  29. Sibly, Hugh, 1995. "Price Dynamics in Repeat-Purchase Markets," The Economic Record, The Economic Society of Australia, vol. 71(213), pages 179-90, June.
  30. David Amirault & Carolyn Kwan & Gordon Wilkinson, 2006. "Survey of Price-Setting Behaviour of Canadian Companies," Working Papers 06-35, Bank of Canada.
  31. Bils, Mark, 1987. "The Cyclical Behavior of Marginal Cost and Price," American Economic Review, American Economic Association, vol. 77(5), pages 838-55, December.
  32. Kyle Bagwell, 2004. "Countercyclical Pricing in Customer Markets," Economica, London School of Economics and Political Science, vol. 71(284), pages 519-542, November.
  33. Warner, Elizabeth J & Barsky, Robert B, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 321-52, May.
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