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The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains

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  • Levy, Daniel, et al

Abstract

The authors use store-level data to document the exact process of changing prices and to directly measure menu costs at five multistore supermarket chains. They show that changing prices in these establishments is a complex process, requiring dozens of steps and a nontrivial amount of resources. The menu costs average $105,887/year per store, comprising 0.70 percent of revenues, 35.2 percent of net margins, and $0.52/price change. These menu costs may be forming a barrier to price changes. Specifically, (1) a supermarket chain facing higher menu costs (due to item pricing laws that require a separate price tag on each item) changes prices two and one-half times less frequently than the other four chains; (2) within this chain the prices of products exempt from the law are changed over three times more frequently than the products subject to the law. Coauthors are Mark Bergen, Shantanu Dutta, and Robert Venable. Copyright 1997, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 112 (1997)
Issue (Month): 3 (August)
Pages: 791-825

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Handle: RePEc:tpr:qjecon:v:112:y:1997:i:3:p:791-825

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Web page: http://mitpress.mit.edu/journals/

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Web: http://mitpress.mit.edu/journal-home.tcl?issn=00335533

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