Costly Customer Relations and Pricing

Bibliographic Details
Authors and Corporations: Orszag, J. Michael
Title: Costly Customer Relations and Pricing
In: Oxford Economic Papers, 59, 2007, 4, p. 641-661
Oxford University Press
Physical Description:641-661
ISSN/ISBN: 0030-7653
Summary:<p>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.</p>
Type of Resource:E-Article
JSTOR Business & Economics
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Language: English