In many markets consumers form long-term relationships with firms. In such settings, a firm's existing customers are valuable assets whose ‘loyalty' must be maintained through continued investment. In this paper we assume that consumer loyalty is strengthened with repeated buying but may erode...

We consider the consequences of a shared brand name such as geographical names used to identify high quality products, for the incentives of otherwise autonomous firms to invest in quality. We contend that such collective brand labels improve communication between sellers and consumers, when the...

Recent studies (Galor and Zeira (1993), Banerjee and Newman (1993)) argue that, because of capital market imperfections, income inequality leads to inefficiencies which impede economic growth. By contrast, Keynes believed that since the rich save at a higher rate than the poor, income inequality...

We consider how facilitating consumer's ability to compare firms' past performace with that of their competitors affects firms' incentives to invest in quality of experience goods. We show that, counterintuitively, when consumers are better informed and investment in quality is noisy, firms may...

We consider a durable-good monopolist that periodically introduces new models, each new model representing an improvement upon its predecessor. We show that if the monopolist is able neither to exercise planned obsolescence (i.e., artificially shorten the life of its products) nor to give...

We present a model in which purely monetary inflation systematically affects efficiency, welfare, and relative prices. The model focuses on the microeconomics of trade in search markets under inflation. Inflation, by increasing the cost of holding money, undermines the market's ability to...

We present a model that links the division of labor and economic growth with the division of wealth in society. When capital market imperfections restrict the access of poor households to capital, the division of wealth affects individual incentives to invest in specialization. In turn, the...

A model of gradual reputation formation through a process of continuous investment in product quality is developed. We assume that the ability to produce high-quality products requires continuous investment and that as a consequence of informational frictions, such as search costs, information...

We develop a model of firm size, based on the hypothesis that consumers are "locked in" because of search costs, with firms they have patronized in the past. As a consequence, older firms have a larger clientele and are able to extract higher profits. The equilibrium of this model yields: (i) A...

A striking characteristic of high-tech products is the rapid decrease of their quality-adjusted prices. Empirical studies show that the rate of decrease of QAPs is typically not constant over time; QAPs decrease rapidly at early stages of the product and then the rate of decrease tapers off....