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M. Ali Choudhary, J. Michael Orszag, Costly customer relations and pricing, Oxford Economic Papers, Volume 59, Issue 4, October 2007, Pages 641–661, https://doi.org/10.1093/oep/gpm003
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Abstract
In this paper we show that when a monopolist incurs certain costs for servicing or maintaining its customer-base, price markups may decrease with high demand — i.e. markups are countercylical. Indeed, for a given market share when demand booms each customer on average will purchase more output and the costs of servicing clients are spread across a larger volume of output sold. This increasing-return effect raises the incentive for the monopolists to expand its market-share by reducing markups. We also find evidence on UK data that industries with higher customer-care costs tend to have a higher degree of coutercyclical markups as compared with industries with lower such costs.