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

Mark Bergen, Daniel Levy (), Sourav Ray, Paul H. Rubin () and Ben Zeliger

MPRA Paper from University Library of Munich, Germany

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 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 exempt 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 which are based on measurements of the frequency and the magnitude of pricing errors the IPLs are supposed to prevent. We find that the costs of IPLs are an order of magnitude higher than the upper bound of these estimate benefits.

Keywords: Item Pricing Law; Cost of Item Pricing Law; Cost of Price Adjustment; Menu Cost; Retail Pricing (search for similar items in EconPapers)
JEL-codes: L11 K20 L81 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law and nep-reg
Date: 2006-10-08
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Related works:
Working Paper: When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws (2004)
Working Paper: When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws (2005)
Journal Article: When Little Things Mean a Lot: On the Inefficiency of Item-Pricing Laws (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:1158

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