Menu Costs, Posted Prices, and Multiproduct Retailers
University of Southern California - Marshall School of Business
Mark E. Bergen
University of Minnesota - Carlson School of Management
Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis
Robert W. Baird & Co. Incorporated
Journal of Money, Credit, and Banking, Vol. 31, No. 4, pp. 683-703, November 1999
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 4 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.
Keywords: Menu Cost, Posted Prices, Multiproduct Retailers, Time Dependent Pricing
JEL Classification: E12, E31
Date posted: November 12, 1998
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