Price setting in forward-looking customer markets

► If consumers form good-specific habits, firms face a time-inconsistency problem. ► Firms have an incentive to promise low future prices, but then price gouge. ► Firms can benefit from “committing to a sticky price.” ► With asymmetric information, the firm-preferred equilibrium is a “price cap.” ► Our model can simultaneously generate a rigid regular price and frequent “sales”.