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Customer Relationship and Sales

  • Shouyong Shi

    (University of Toronto)

I analyze a search equilibrium of a large market where customer relationship arises endogenously together with service priority and sales. A buyer is related to a seller if he just purchased from the seller, and the relationship is broken if the buyer fails to buy from the seller. I prove that there exists a unique equilibrium where it is optimal for a buyer to make repeat purchases from the related seller and optimal for a seller to give service priority to the related buyer. Moreover, a related seller posts a (high) regular price, and an unrelated seller posts a (low) sale price with the intention to revert to the regular price once he gains a relationship. The fraction of related sellers is endogenous. I examine how market conditions affect the stock of relationships, markups, the size and the duration of a sale.

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File URL: https://economicdynamics.org/meetpapers/2013/paper_88.pdf
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Paper provided by Society for Economic Dynamics in its series 2013 Meeting Papers with number 88.

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Date of creation: 2013
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Handle: RePEc:red:sed013:88
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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