External Financing and Customer Capital: A Financial Theory of Markups

• 成果类型: Article
• 署名作者: Dou, Winston Wei; Ji, Yan
• 署名单位: University of Pennsylvania; Hong Kong University of Science & Technology
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3739
• 发表日期: 2021
• 页码: 5569-5585
• 关键词: Markups; customer base; external financing costs; monopolistic competition; Corporate liquidity; Industry dynamics

摘要

We develop a continuous-time industry equilibrium model of monopolistic competition to understand how product markups are determined in the presence of external financing costs and customer capital. Firms optimally set markups to balance the tradeoff between profiting from their existing customer base and developing their future customer base. We characterize how the equilibrium markups are determined by the interaction between the marginal value of corporate liquidity and the marginal value of customer base. Firms' markups are more responsive to changes in their marginal value of corporate liquidity when the marginal value of customer base is higher. Moreover, the model predicts that greater product market threats lead to more conservative financial policies, which is supported by the data.