How Well Do Firms Retain Customers After Price Increases?
Abstract: Economists at the Federal Reserve Bank of Richmond and the Einaudi Institute for Economics and Finance developed a model that studies the optimal price setting of a firm. Using microdata from the U.S. retail industry, we document that customer turnover responds to price changes. Therefore, to keep customers, firms do not completely pass productivity shocks through to their prices. The price pass-through is heterogeneous across firms, with the most productive firms passing through more.
Keywords: Customer base; price inflation dynamics; productivity;
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Provider: Federal Reserve Bank of Richmond
Part of Series: Richmond Fed Economic Brief
Publication Date: 2023-05