Advanced Search
MyIDEAS: Login

When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws

Contents:

Author Info

  • Bergen, Mark
  • Levy, Daniel
  • Ray, Sourav
  • Rubin, Paul
  • Zeliger, Ben

Abstract

Item pricing laws (IPLs) require a price tag on every item sold by a retailer. We study IPLs and assess their efficiency by quantifying their costs and comparing them to previously documented benefits. On the cost side, we posit that IPLs should lead to higher prices because they increase the cost of pricing as well as the cost of price adjustment. We test this prediction using data collected from large supermarket chains in the Tri-State area of New York, New Jersey and Connecticut, which offer a unique setting because these states vary in their use of IPLs, but otherwise offer geographical proximity with each other and similar markets, supermarket chains, and socioeconomic environments. We find that IPL store prices are higher by about 20¢–25¢ or 8.0%–9.6% per item on average, in comparison to non-IPL stores. As a control, we use data from stores that are exempt from IPL requirements (because they use electronic shelf labels), and find that their prices fall between IPL and non-IPL store prices. To assess the efficiency of IPLs, we compare these costs to existing measures of the benefits of IPLs which are based on measurements of the frequency and the magnitude of pricing errors the IPLs are supposed to prevent. We find that the costs of IPLs are an order of magnitude higher than the upper bound of these estimate benefits.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/1158/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 1158.

as in new window
Length:
Date of creation: 08 Oct 2006
Date of revision:
Handle: RePEc:pra:mprapa:1158

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: Item Pricing Law; Cost of Item Pricing Law; Cost of Price Adjustment; Menu Cost; Retail Pricing;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Jarrell, Gregg & Peltzman, Sam, 1985. "The Impact of Product Recalls on the Wealth of Sellers," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 512-36, June.
  2. Daniel Levy & Georg Mueller & Haipeng (Allan) Chen & Mark Bergen & Shantanu Dutta, 2008. "Holiday Price Rigidity and Cost of Price Adjustment," Emory Economics 0802, Department of Economics, Emory University (Atlanta).
  3. Levy, Daniel, et al, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 791-825, August.
  4. Daniel Levy & Shantanu Dutta & Mark Bergen & Robert Venable, 1998. "Price adjustment at multiproduct retailers," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(2), pages 81-120.
  5. Shantanu Dutta & Mark Bergen & Daniel Levy, 2004. "Price Flexibility in Channels of Distribution: Evidence from Scanner Data," Macroeconomics 0402018, EconWPA.
  6. Jeffrey Milyo & Joel Waldfogel, 1998. "The Effect of Price Advertising on Prices: Evidence in the Wake of 44 Liquormart," Discussion Papers Series, Department of Economics, Tufts University 9807, Department of Economics, Tufts University.
  7. Sourav Ray & Haipeng (Allan) Chen & Mark Bergen & Daniel Levy, 2005. "Asymmetric Wholesale Pricing: Theory and Evidence," Emory Economics 0513, Department of Economics, Emory University (Atlanta).
  8. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky information versus sticky prices: a proposal to replace the New-Keynesian Phillips curve," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  9. Sam Peltzman, 1998. "Prices Rise Faster Than They Fall," University of Chicago - George G. Stigler Center for Study of Economy and State 142, Chicago - Center for Study of Economy and State.
  10. Beales, Howard & Craswell, Richard & Salop, Steven C, 1981. "The Efficient Regulation of Consumer Information," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 491-539, December.
  11. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
  12. Dutta, Shantanu, et al, 1999. "Menu Costs, Posted Prices, and Multiproduct Retailers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(4), pages 683-703, November.
  13. Judith A. Chevalier & Anil K. Kashyap & Peter E. Rossi, 2000. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," NBER Working Papers 7981, National Bureau of Economic Research, Inc.
  14. Peltzman, Sam, 1981. "The Effects of FTC Advertising Regulation," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 403-48, December.
  15. Robert B. Barsky & Mark Bergen & Shantanu Dutta & Daniel Levy, 2003. "What Can the Price Gap between Branded and Private-Label Products Tell Us about Markups?," NBER Chapters, in: Scanner Data and Price Indexes, pages 165-228 National Bureau of Economic Research, Inc.
  16. Reis, Ricardo, 2005. "Inattentive Consumers," CEPR Discussion Papers 5053, C.E.P.R. Discussion Papers.
  17. Mark Zbaracki & Mark Bergen & Daniel Levy & Mark Ritson, 2005. "Beyond the Cost of Price Adjustment: Investments in Pricing Capital," Working Papers 2005-03, Department of Economics, Bar-Ilan University.
  18. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
  19. Laurence Ball & N. Gregory Mankiw & Ricardo Reis, 2003. "Monetary Policy for Inattentive Economies," Harvard Institute of Economic Research Working Papers 1997, Harvard - Institute of Economic Research.
  20. Warner, Elizabeth J & Barsky, Robert B, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 321-52, May.
  21. Daniel Levy & Haipeng Allan Chen & Sourav Ray & Mark Bergen, 2004. "Asymmetric Price Adjustment "in the Small:" An Implication of Rational Inattention," Macroeconomics 0407012, EconWPA, revised 11 May 2005.
  22. Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Heterogeneity in Price Rigidity: Evidence from a Case Study Using Micro-Level Data," Macroeconomics 0402021, EconWPA.
  23. Mankiw, N Gregory, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model," The Quarterly Journal of Economics, MIT Press, vol. 100(2), pages 529-38, May.
  24. Ginger Zhe Jin & Phillip Leslie, 2003. "The Effect Of Information On Product Quality: Evidence From Restaurant Hygiene Grade Cards," The Quarterly Journal of Economics, MIT Press, vol. 118(2), pages 409-451, May.
  25. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  26. Mark Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," Macroeconomics 0402020, EconWPA.
  27. Benham, Lee, 1972. "The Effect of Advertising on the Price of Eyeglasses," Journal of Law and Economics, University of Chicago Press, vol. 15(2), pages 337-52, October.
  28. Eitan Gerstner & James D. Hess, 1990. "Can Bait and Switch Benefit Consumers?," Marketing Science, INFORMS, vol. 9(2), pages 114-124.
  29. Julio Rotemberg, 1987. "The New Keynesian Microfoundations," NBER Chapters, in: NBER Macroeconomics Annual 1987, Volume 2, pages 69-116 National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:1158. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.