Abstract

http://ssrn.com/abstract=671790
 
 

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The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains


Daniel Levy


Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis

Mark E. Bergen


University of Minnesota - Carlson School of Management

Shantanu Dutta


University of Southern California - Marshall School of Business

Robert Venable


Robert W. Baird & Co. Incorporated


Quarterly Journal of Economics, Vol. 112, No. 3, pp. 791-825, August 1997

Abstract:     
We use store-level data to document the exact process of changing prices and to directly measure menu costs at five multistore supermarket chains. We show that changing prices in these establishments is a complex process, requiring dozens of steps and a nontrivial amount of resources. The menu costs average $105,887/year per store, comprising 0.70 percent of revenues, 35.2 percent of net margins, and $0.52/price change. These menu costs may be forming a barrier to price changes. Specifically, (1) a supermarket chain facing higher menu costs (due to item pricing laws that require a separate price tag on each item) changes prices two and one-half times less frequently than the other four chains; (2) within this chain the prices of products exempt from the law are changed over three times more frequently than the products subject to the law.

Keywords: Menu Cost, Price Rigidity, Cost of Price Adjustment, Time-Dependent Pricing Rules, Item Pricing Law, Retail Supermarket Chain

JEL Classification: E12, E31, L16

Accepted Paper Series





Not Available For Download

Date posted: February 27, 2005  

Suggested Citation

Levy, Daniel and Bergen, Mark E. and Dutta, Shantanu and Venable, Robert, The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains. Quarterly Journal of Economics, Vol. 112, No. 3, pp. 791-825, August 1997. Available at SSRN: http://ssrn.com/abstract=671790

Contact Information

Daniel Levy (Contact Author)
Bar-Ilan University - Department of Economics ( email )
Ramat-Gan, 5290002
Israel
+972 3 531-8345 (Phone)
+972 3 738-4034 (Fax)
HOME PAGE: http://econ.biu.ac.il/en/levy

Emory University - Department of Economics ( email )
1602 Fishburne Drive, Suite 306
Rich Building
Atlanta, GA 30322-0001
United States
HOME PAGE: http://economics.emory.edu/home/people/faculty/Levydaniel.html
Rimini Center for Economic Analysis ( email )
Via Patara, 3
Rimini (RN), RN 47900
Italy
HOME PAGE: http://www.rcfea.org/
Mark E. Bergen
University of Minnesota - Carlson School of Management ( email )
19th Avenue South
Minneapolis, MN 55455
United States
612-624-1821 (Phone)
Shantanu Dutta
University of Southern California - Marshall School of Business ( email )
Hoffman Hall 701
Los Angeles, CA 90089-1427
United States
213-740-5038 (Phone)
213-740-7828 (Fax)
Robert Venable
Robert W. Baird & Co. Incorporated ( email )
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