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

Daniel Levy (), Mark Bergen, Shantanu Dutta and Robert Venable
Additional contact information
Mark Bergen: University of Minnesota
Shantanu Dutta: University of Sourthern California
Robert Venable: Robert W. Baird, Co.

Macroeconomics from EconWPA

Abstract: We use store-level data to document the exact process of changing prices and to directly measure menu costs at five multi-store 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% of revenues, 35.2% 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 which require a separate price tag on each item) changes prices 2 1/2 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; Posted Prices; Multiproduct Retailer; Price Rigidity; Sticky Prices; Rigid Prices; Cost of Price Adjustment; New Keynesian Economics; Time Dependent Pricing (search for similar items in EconPapers)
JEL-codes: E12 E31 E50 G13 G14 L11 L15 L16 M21 M31 Q11 Q13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com and nep-mac
Date: Written 2005-05-15
Note: Type of Document - pdf; pages: 38
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Related works:
Journal Article: The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains (1997)
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