Price settinginforward-lookingcustomermarkets

If consumersformhabitsinindividualgoods,firmsfaceatime-inconsistencyproblem. Low pricesinthefuturehelpattractcustomersinthepresent.Firms,therefore,havean incentivetopromiselowpricesinthefuture,butpricegougewhenthefuturearrives. In thissetting,firmsbenefitfrom‘‘committingtoastickyprice.’’Ifconsumershave incompleteinformationaboutcostsanddemand,thefirm-preferredequilibriumhas thefirmpriceatorbelowa‘‘pricecap.’’Themodelthereforeprovidesanexplanationfor thesimultaneousexistenceofarigidregularpriceandfrequent‘‘sales’’.