Price rigidity in customer markets [An article from: Journal of Economic Behavior and Organization]

This digital document is a journal article from Journal of Economic Behavior and Organization, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
Customer markets are characterized by long-term relationships between buyers and sellers that evolve if buyers trust sellers to provide high quality and if sellers are trustworthy. However, changes in the terms of this implicit contract may antagonize customers and disrupt the relationship. We experimentally show that mutually beneficial long-term relationships frequently prevail in markets for experience goods and that price rigidity after a temporary cost shock is much more pronounced if price increases cannot be justified by cost increases. Hence, long-term relationships in customer markets mitigate market failure of the ''lemons'' type, but are prone to price stickiness.