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

37 Pages Posted: 21 Feb 2006  

Mark E. Bergen

University of Minnesota - Carlson School of Management

Daniel Levy

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

Sourav Ray

McMaster University - DeGroote School of Business

Paul H. Rubin

Emory University - Department of Economics

Benjamin Zeliger

Cornell University - Law School

Multiple version iconThere are 2 versions of this paper

Date Written: February 19, 2006

Abstract

Item pricing laws (IPLs) require a price tag on every item sold by a retailer. We study IPLs and assess their efficiency by examining and quantifying their costs and comparing them to their measurable benefits. On the cost side, we posit that IPLs should lead to higher prices because they increase the cost of pricing as well as the cost of 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, which offer a unique setting because these states vary in their use of IPLs, but otherwise offer geographical proximity with each other and similar markets, supermarket chains, and socioeconomic environments. We find that IPL store prices are higher by about 20¢-25¢ or 8.0%-9.6% per item on average, in comparison to non-IPL stores. As a control, we use data from stores that are exempted from IPL requirements (because they use electronic shelf labels), and find that their prices fall between IPL and non-IPL store prices. To assess the efficiency of IPLs, we compare these costs to existing measures of the benefits of IPLs. Specifically, we study the frequency and magnitude of pricing errors, which the IPLs are supposed to prevent. We find that the IPLs' costs are an order of magnitude higher than these benefits.

Keywords: Item Pricing Law, Cost of Item Pricing Law, Cost of Price Adjustment, Menu Cost, Retail Pricing

JEL Classification: K20, L11, L81, E31, L51, D21, D40

Suggested Citation

Bergen, Mark E. and Levy, Daniel and Ray, Sourav and Rubin, Paul H. and Zeliger, Benjamin, When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws (February 19, 2006). Emory Law and Economics Research Paper No. 04-08; Emory Public Law Research Paper No. 06-11. Available at SSRN: https://ssrn.com/abstract=885906 or http://dx.doi.org/10.2139/ssrn.885906

Mark E. Bergen

University of Minnesota - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
612-624-1821 (Phone)

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/

Sourav Ray

McMaster University - DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada
905-525-9140 x 22370 (Phone)
905-521-8995 (Fax)

Paul H. Rubin

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States
404-931-0493 (Phone)
630-604-9609 (Fax)

HOME PAGE: http://www.economics.emory.edu/Rubi.htm

Benjamin Zeliger

Cornell University - Law School ( email )

Myron Taylor Hall
Cornell University
Ithaca, NY 14853-4901
United States

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