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Pricing in a Customer Market

Mark Bils

National Bureau of Economic Research

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. I consider a monopolist selling a good of which first-time consumers are uncertain. Repeat customers know that the product works. The monopolist trades the objec-tives 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, I examine some evidence on whether expansions are periods with disproportionately many new customers. I.

DOI

10.2307/2937863

Volume

104 (4)

Pages

699

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BibTeX

Sources

crossref openalex