Sticky Prices in Customer Markets

19 Pages Posted: 14 Sep 2012

See all articles by M. Ali Choudhary

M. Ali Choudhary

affiliation not provided to SSRN

Thorlakur Karlsson

affiliation not provided to SSRN

Gylfi Zoega

University of Iceland; University of London - Birkbeck College; Centre for Economic Policy Research (CEPR)

Date Written: September 2012

Abstract

This paper uses survey data on 884 firms from Iceland to test some of the implications of the theory of customer markets proposed by Phelps and Winter (1970). Responses indicate that customers are valuable to firms in accordance with the theory. Firms that list customers as the most valuable asset differ from others in more frequently responding that they would keep prices unchanged when interest rates change; they more frequently mention low prices or habit formation as a source of customer loyalty and they attract customers mainly through marketing and salesmanship. Price changes appear not to be an important policy for attracting and retaining customers.

JEL Classification: D43, E24

Suggested Citation

Choudhary, M. Ali and Karlsson, Thorlakur and Zoega, Gylfi, Sticky Prices in Customer Markets (September 2012). Economic Record, Vol. 88, Issue 282, pp. 372-390, 2012, Available at SSRN: https://ssrn.com/abstract=2146451 or http://dx.doi.org/10.1111/j.1475-4932.2012.00826.x

M. Ali Choudhary (Contact Author)

affiliation not provided to SSRN

Thorlakur Karlsson

affiliation not provided to SSRN

No Address Available

Gylfi Zoega

University of Iceland ( email )

IS-101 Reykjavik
Iceland

University of London - Birkbeck College ( email )

Malet Street
London, WC1E 7HX
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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