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Menu Costs, Posted Prices, and Multiproduct Retailers

  • Dutta, Shantanu, et al

We use a unique store-level data set to directly measure menu costs and to study the price change process at a large U.S. drugstore chain. We compare and contrast the magnitude of these measures with similar measures from four large U.S. supermarket chains. We find that (1) the actual magnitude of menu costs as a share of revenues, (2) menu costs per price change, (3) the frequent use of promotional pricing, and (4) the use of weekly pricing rules are similar across both retail formats. Given that the main common features of these two types of retail formats are that (i) they both use posted prices and (ii) both are multiproduct retailers selling a large number of products, our findings suggest that the magnitude of the menu cost components we measure, and the price change practices we document, may be generalizable across retail formats with these two features.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 31 (1999)
Issue (Month): 4 (November)
Pages: 683-703

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Handle: RePEc:mcb:jmoncb:v:31:y:1999:i:4:p:683-703
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Gordon, Robert J, 1990. "What Is New-Keynesian Economics?," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1115-71, September.
  2. Andrew S. Caplin & Daniel F. Spulber, 1987. "Menu Costs and the Neutrality of Money," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 703-725.
  3. Anil K Kashyap, 1995. "Sticky Prices: New Evidence from Retail Catalogs," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 245-274.
  4. Danziger, Leif, 1983. "Price Adjustments with Stochastic Inflation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 699-707, October.
  5. Andersen, Torben M., 1994. "Price Rigidity: Causes and Macroeconomic Implications," OUP Catalogue, Oxford University Press, number 9780198287605, December.
  6. Alan S. Blinder, 1991. "Why are Prices Sticky? Preliminary Results from an Interview Study," NBER Working Papers 3646, National Bureau of Economic Research, Inc.
  7. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
  8. Elizabeth J. Warner & Robert B. Barsky, 1995. "The Timing and Magnitude of Retail Store Markdowns: Evidence from Weekends and Holidays," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 321-352.
  9. Parkin, Michael, 1986. "The Output-Inflation Trade-off When Prices Are Costly to Change," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 200-224, February.
  10. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-89, April.
  11. Andrew Caplin & John Leahy, 1991. "State-Dependent Pricing and the Dynamics of Money and Output," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 683-708.
  12. Liebermann, Yehoshua & Zilberfard, Ben-Zion, 1985. "Price adjustment strategy under conditions of high inflation: An empirical examination," Journal of Economics and Business, Elsevier, vol. 37(3), pages 253-265, August.
  13. Eytan Sheshinski & Yoram Weiss, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Oxford University Press, vol. 44(2), pages 287-303.
  14. N. Gregory Mankiw, 1985. "Small Menu Costs and Large Business Cycles: A Macroeconomic Model of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 100(2), pages 529-538.
  15. Daniel Levy & Mark Bergen & Shantanu Dutta & Robert Venable, 2005. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," Macroeconomics 0505012, EconWPA.
  16. Carlson, John A, 1992. "Some Evidence on Lump Sum versus Convex Costs of Changing Prices," Economic Inquiry, Western Economic Association International, vol. 30(2), pages 322-31, April.
  17. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
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