Sticky Prices in Customer Markets*

• Published in: Economic Record
• Main Authors: CHOUDHARY, M. ALI, KARLSSON, THORLAKUR, ZOEGA, GYLFI
• Format: Article in Journal/Newspaper
• Language: English
• Published: Wiley 2012
• Subjects: Iceland
• Online Access: http://dx.doi.org/10.1111/j.1475-4932.2012.00826.x; https://api.wiley.com/onlinelibrary/tdm/v1/articles/10.1111%2Fj.1475-4932.2012.00826.x; https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1475-4932.2012.00826.x

This paper uses survey data on 884 firms from Iceland to test some of the implications of the theory of customer markets proposed by Phelps and Winter (1970) . Responses indicate that customers are valuable to firms in accordance with the theory. Firms that list customers as the most valuable asset differ from others in more frequently responding that they would keep prices unchanged when interest rates change; they more frequently mention low prices or habit formation as a source of customer loyalty and they attract customers mainly through marketing and salesmanship. Price changes appear not to be an important policy for attracting and retaining customers.