Price Rigidity in Customer Markets

University of St. Gallen Economics Discussion Paper No. 2003-16

41 Pages Posted: 23 Oct 2003

See all articles by Jean-Robert Tyran

Jean-Robert Tyran

University of Vienna; University of Copenhagen - Department of Economics; Centre for Economic Policy Research (CEPR)

Elke Renner

University of Nottingham

Multiple version iconThere are 2 versions of this paper

Date Written: September 2003

Abstract

Customer markets are characterized by long-term relations between buyers and sellers. Long-term relations evolve if buyers trust sellers to provide high quality and if sellers are trustworthy. However, changes in the terms of this implicit contract may antagonize customers and disrupt the relation. We experimentally show that mutually beneficial long-term relations frequently prevail in markets for experience goods, and that price rigidity after a temporary cost shock is much more pronounced if price increases cannot be justified by cost increases. Hence, long-term relations on customer markets mitigate market failure of the "lemons" type, but are prone to price stickiness.

Keywords: Customer market, price stickiness, customer loyalty

JEL Classification: C92, D43, L14, Z13

Suggested Citation

Tyran, Jean-Robert and Renner, Elke, Price Rigidity in Customer Markets (September 2003). University of St. Gallen Economics Discussion Paper No. 2003-16, Available at SSRN: https://ssrn.com/abstract=450380 or http://dx.doi.org/10.2139/ssrn.450380

Jean-Robert Tyran (Contact Author)

University of Vienna ( email )

Oskar-Morgenstern-Platz 1
Vienna, Vienna 1090
Austria

HOME PAGE: http://homepage.univie.ac.at/jean-robert.tyran/

University of Copenhagen - Department of Economics ( email )

Ă˜ster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark
+45 353 23 027 (Phone)

HOME PAGE: http://www.econ.ku.dk/tyran/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Elke Renner

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
122
Abstract Views
1,346
rank
249,376
PlumX Metrics