IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

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

  • Mark Bergen

    (University of Minnesota)

  • Daniel Levy

    ()

    (Bar-Ilan University and Emory University)

  • Sourav Ray

    (McMaster University)

  • Paul H. Rubin

    (Emory University)

  • Benjamin Zeliger

    (Cornell University)

We study item-pricing laws (which require that each item in a store be individually marked with a price sticker) and examine and quantify their costs and benefits. On the cost side, we argue that item-pricing laws increase the retailers’ costs, forcing them to raise prices. We test this prediction using data on retail prices from large supermarket chains in the Tri-State area of New York, New Jersey and Connecticut. The Tri-States offer a unique setting—a natural experiment—to study item-pricing laws because the States vary in their use of item-pricing laws, but otherwise offer similar markets and chains operating in a close proximity to each other in a relatively homogenous socioeconomic environment. We use two datasets, one emphasizing the breadth in coverage across products and the other across stores. We find consistent evidence across products, product categories, stores, chains, states, and sampling periods, that the prices at stores facing item-pricing laws are higher than the prices at stores not facing the item pricing laws by about 25¢ or 9.6% per item. We also have data from supermarket chains that would be subject to item-pricing laws but are exempted from item pricing requirement because they use costly electronic shelf label systems. Using this data as a control, we find that the electronic shelf label store prices fall between the item-pricing law and non-item-pricing law store prices: they are lower than the item-pricing law store prices by about 15¢ per item on average, but are higher than the non-item-pricing law store prices by about 10¢ per item on average. On the benefit side, we study the frequency and the magnitude of supermarket pricing errors, which the item-pricing laws are supposed to prevent. We quantify the benefits of the IPLs by conservatively assuming that they successfully accomplish their mission of preventing all price mistakes. Comparing the costs of item-pricing laws to their benefits, we find that the item-pricing law costs are at least an order of magnitude higher than the benefits.

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://www.biu.ac.il/soc/ec/wp/6-04/6-04.html
File Function: Working paper
Download Restriction: no

Paper provided by Bar-Ilan University, Department of Economics in its series Working Papers with number 2004-06.

as
in new window

Length:
Date of creation: May 2004
Date of revision:
Handle: RePEc:biu:wpaper:2004-06
Contact details of provider: Postal: Faculty of Social Sciences, Bar Ilan University 52900 Ramat-Gan
Phone: Phone: +972-3-5318345
Fax: +972-3-7384034
Web page: http://www.biu.ac.il/soc/ec
Email:


More information through EDIRC

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. Sam Peltzman, 1980. "The Effects of FTC Advertising Regulation," University of Chicago - George G. Stigler Center for Study of Economy and State 19, Chicago - Center for Study of Economy and State.
  2. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
  3. 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.
  4. Reis, Ricardo, 2005. "Inattentive Consumers," CEPR Discussion Papers 5053, C.E.P.R. Discussion Papers.
  5. Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Heterogeneity in Price Rigidity: Evidence from a Case Study Using Micro-Level Data," Macroeconomics 0402021, EconWPA.
  6. Peter E. Rossi & Judith A. Chevalier & Anil K. Kashyap, 2002. "Why Don't Prices Rise During Periods of Peak Demand? Evidence from Scanner Data," Yale School of Management Working Papers ysm291, Yale School of Management.
  7. Shantanu Dutta & Mark Bergen & Daniel Levy, 2004. "Price Flexibility in Channels of Distribution: Evidence from Scanner Data," Macroeconomics 0402018, EconWPA.
  8. 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.
  9. 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.
  10. Ball, Laurence & Gregory Mankiw, N. & Reis, Ricardo, 2005. "Monetary policy for inattentive economies," Journal of Monetary Economics, Elsevier, vol. 52(4), pages 703-725, May.
  11. Mark J. Zbaracki & Mark Ritson & Daniel Levy & Shantanu Dutta & Mark Bergen, 2004. "Managerial and Customer Costs of Price Adjustment: Direct Evidence from Industrial Markets," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 514-533, May.
  12. Daniel Levy & Haipeng (Allan) Chen & Sourav Ray & Mark Bergen, 2004. "Asymmetric Price Adjustment in the Small: An Implication of Rational Inattention," Working Papers 2004-08, Bar-Ilan University, Department of Economics.
  13. 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.
  14. 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.
  15. 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).
  16. 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).
  17. 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.
  18. 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.
  19. 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.
  20. Mark Zbaracki & Mark Bergen & Shantanu Dutta & Daniel Levy & Mark Ritson, 2005. "Beyond the Cost of Price Adjustment: Investments in Pricing Capital," Macroeconomics 0505013, EconWPA.
  21. 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.
  22. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November.
  23. 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.
  24. Shantanu Dutta & Mark Bergen & Daniel Levy & Robert Venable, 2005. "Menu Costs, Posted Prices, and Multiproduct Retailers," Macroeconomics 0505007, EconWPA.
  25. Eitan Gerstner & James D. Hess, 1990. "Can Bait and Switch Benefit Consumers?," Marketing Science, INFORMS, vol. 9(2), pages 114-124.
  26. 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.
  27. 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.
  28. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  29. 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.
  30. H.E. Frech, 1993. "Product-Risk Labeling," Books, American Enterprise Institute, number 53129, 5.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:biu:wpaper:2004-06. 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: (Department of Economics)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.