TY  - JOUR
AU  - Gourio,Francois
AU  - Rudanko,Leena
TI  - Customer Capital
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17191
PY  - 2011
Y2  - July 2011
UR  - http://www.nber.org/papers/w17191
L1  - http://www.nber.org/papers/w17191.pdf
N1  - Author contact info:
Francois Gourio
Department of Economics
Boston University
270 Bay State Road
Boston, MA 02215
Tel: 617/353-4534
Fax: 617/353-4449
E-Mail: fgourio@bu.edu

Leena Rudanko
Department of Economics
Boston University
270 Bay State Road
Boston, MA 02215
Tel: 617/353-7082
E-Mail: rudanko@bu.edu
AB  - Firms spend substantial resources on marketing and selling. Interpreting this as evidence of frictions in product markets, which require firms to spend resources on customer acquisition, this paper develops a search theoretic model of firm dynamics in frictional product markets. Introducing search frictions generates long-term customer relationships, rendering the customer base a state variable for firms, which is sluggish to adjust. This affects: the level and volatility of firm investment, sales, profits, value and markups, the timing of firm responses to shocks, and the relationship between investment and Tobin’s q. We document support for these predictions in firm-level data from Compustat, using cross-industry variation in selling expenses to quantify differences in the degree of friction across markets.
ER  -