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

Author

Listed:
  • Mark Bergen

    (Carlson School of Management - UMN - University of Minnesota [Twin Cities] - University of Minnesota System)

  • Daniel Levy

    (RCEA - Rimini Center for Economic Analysis, Emory University [Atlanta, GA], Bar-Ilan University [Israël])

  • Sourav Ray

    (McMaster University - Department of Computing and Software - McMaster University [Hamilton, Ontario])

  • Paul h. Rubin

    (Emory University [Atlanta, GA])

  • Benjamin Zeliger

    (Cornell University [New York])

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 costs of pricing and 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. We find that IPL store prices are higher by about 20¢–25¢ per item on average. As a control, we use data from stores that use electronic shelf labels and find that their prices fall between IPL and no‐IPL store prices. We compare the costs of IPLs to existing measures of the benefits and find that the costs are an order of magnitude higher than the upper bound of the estimated benefits.

Suggested Citation

  • Mark Bergen & Daniel Levy & Sourav Ray & Paul h. Rubin & Benjamin Zeliger, 2008. "When Little Things Mean a Lot: On the Inefficiency of Item‐Pricing Laws," Post-Print hal-02387487, HAL.
    • Handle: RePEc:hal:journl:hal-02387487
    DOI: 10.1086/589660
    Note: View the original document on HAL open archive server: https://hal.science/hal-02387487
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    More about this item

    Keywords

    Item Pricing Law; Cost of Item Pricing Law; Cost of Price Adjustment; Menu Cost; Retail Pricing;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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