Andrea Pozzi, Einaudi Institute of Economics
Location:
Gerri C. LeBow Hall722
3220 Market Street
Philadelphia, PA 19104
Registration Option:
“Price of Dynamics with Customer Markets”
We provide new evidence of the relationship between rm pricing and customer dynamics. We build and quantify a model where rms choose prices taking into account their eect on the evolution of their customer base, and customers face frictions to reallocate to other rms. The model accounts for salient features of retail price data, such as the high kurtosis of the price distribution and the low pass-through of cost shocks. We also study aggregate dynamics in our framework and show that microfounding customer reallocation leads to a countercyclical response of markups to demand shocks. JEL classication: E30, E12, L16 Keywords: customer markets, price setting, product market frictions