The mechanics of price adjustment: new evidence on the (un)importance of menu costs

Rajesh Chakrabarti and Barry Scholnick
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Rajesh Chakrabarti: Indian School of Business, Hyderabad, India, Postal: Indian School of Business, Hyderabad, India
Barry Scholnick: University of Alberta, Canada, Postal: University of Alberta, Canada

Managerial and Decision Economics, 2007, vol. 28, issue 7, 657-668

Abstract: This paper examines nominal price rigidities in an environment, e-commerce, where literal menu costs can be assumed not to exist. We argue that if we can empirically show that nominal rigidities do still exist in the e-commerce environment, then it implies that other kinds of costs besides menu costs, such as management costs, must be causing these nominal rigidities. This evidence is of importance because of the central role that menu costs play in Keynesian macroeconomics. In this paper we examine the price changing behavior of two leading online booksellers-Amazon.com and BarnesandNoble.com-and find strong evidence that nominal price rigidities do indeed persist on the Internet. Copyright © 2007 John Wiley & Sons, Ltd.

Date: 2007
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Persistent link: https://EconPapers.repec.org/RePEc:wly:mgtdec:v:28:y:2007:i:7:p:657-668

DOI: 10.1002/mde.1374

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