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

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Author Info

  • Daniel Levy

    (Bar-Ilan University)

  • Mark Bergen

    (University of Minnesota)

  • Shantanu Dutta

    (University of Sourthern California)

  • Robert Venable

    (Robert W. Baird, Co.)

Abstract

We use store-level data to document the exact process of changing prices and to directly measure menu costs at five multi-store supermarket chains. We 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% of revenues, 35.2% 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 which require a separate price tag on each item) changes prices 2 1/2 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.

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File URL: http://128.118.178.162/eps/mac/papers/0505/0505012.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0505012.

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Length: 38 pages
Date of creation: 15 May 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0505012

Note: Type of Document - pdf; pages: 38
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Web page: http://128.118.178.162

Related research

Keywords: Menu Cost; Posted Prices; Multiproduct Retailer; Price Rigidity; Sticky Prices; Rigid Prices; Cost of Price Adjustment; New Keynesian Economics; Time Dependent Pricing;

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