Economies of scope in price setting: A moment inequalities estimation

Andrea Stella

Journal of Monetary Economics, 2020, vol. 110, issue C, 50-61

Abstract: Using weekly data on prices, costs and units sold by a supermarket chain, a moment inequalities approach is used to estimate a discrete-choice dynamic model of a multiproduct firm facing menu costs. This empirical methodology allows to estimate two types of fixed costs of price adjustment: costs that are independent of the number of items that change prices and costs that are incurred at each item’s price change. I find that both types of menu costs exist and are substantial. The total cost of changing prices is estimated to be bounded between 0.3% and 1.3% of revenues and between 17% and 65% of net margins. The first type of fixed cost accounts for between 23% and 99% of this expense, pointing to substantial economies of scope in price setting.

Keywords: Menu costs; Moment inequalities; Economies of scope; Multiproduct firms (search for similar items in EconPapers)
JEL-codes: E30 E31 E32 L11 L81 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:110:y:2020:i:c:p:50-61

DOI: 10.1016/j.jmoneco.2018.12.006

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