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Economies of scope in price setting: A moment inequalities estimation

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  • Stella, Andrea

Abstract

Using weekly data on prices, costs and units sold by a supermarket chain, a moment inequalities approach is used to estimate a discrete-choice dynamic model of a multiproduct firm facing menu costs. This empirical methodology allows to estimate two types of fixed costs of price adjustment: costs that are independent of the number of items that change prices and costs that are incurred at each item’s price change. I find that both types of menu costs exist and are substantial. The total cost of changing prices is estimated to be bounded between 0.3% and 1.3% of revenues and between 17% and 65% of net margins. The first type of fixed cost accounts for between 23% and 99% of this expense, pointing to substantial economies of scope in price setting.

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  • Stella, Andrea, 2020. "Economies of scope in price setting: A moment inequalities estimation," Journal of Monetary Economics, Elsevier, vol. 110(C), pages 50-61.
    • Handle: RePEc:eee:moneco:v:110:y:2020:i:c:p:50-61
    DOI: 10.1016/j.jmoneco.2018.12.006
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    Cited by:

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    3. Robert Evan Sanders, 2024. "Dynamic Pricing and Organic Waste Bans: A Study of Grocery Retailers’ Incentives to Reduce Food Waste," Marketing Science, INFORMS, vol. 43(2), pages 289-316, March.
    4. Wilko Letterie & Øivind A. Nilsen, 2022. "Pricing Behaviour and Menu Costs in Multi‐product Firms," Economica, London School of Economics and Political Science, vol. 89(355), pages 746-769, July.

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    More about this item

    Keywords

    Menu costs; Moment inequalities; Economies of scope; Multiproduct firms;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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