Small price changes and menu costs

Saul Lach and Daniel Tsiddon
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Daniel Tsiddon: Tel Aviv University, Israel and CEPR, Postal: Tel Aviv University, Israel and CEPR

Managerial and Decision Economics, 2007, vol. 28, issue 7, pages 649-656

Abstract: We find that while some individual price changes are indeed 'small', the average price change of different products within a store in any given month is not. Moreover, the smaller the price change of an individual product, the larger the average price change of the remaining products sold by the store. We argue that these findings are consistent with extensions of menu cost models of price-setting behavior to multiproduct firms when these firms have high average costs and low marginal costs of changing prices. Copyright © 2007 John Wiley & Sons, Ltd.

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