Since the seminal work on customer competition in Beggs and Klemperer (1992), there has been a growing interest understanding the implications of customer acquisition and retention policies in general equilibrium quantifiable models. Examples are, among others, Menzio (2007), Kleshchelski and Vincent (2009), Gourio and Rudanko (2011), Nakamura and Steinsson (2011), Shi (2011), and Drozd and Nosal (2012). We make three separate contribution to this burgeoning literature. First, we provide novel direct evidence on the degree of customer retention, adding to the still scant empirical literature on the topic. Second, we characterize new important properties of pricing behavior in a model where firms have customer retention concerns. Finally, we combine model and data to quantify the effect of customer retention concerns on the degree of pass-through.

VIEW PAPER