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

Daniel Levy (), Mark Bergen, Shantanu Dutta and Robert Venable

EconStor Open Access Articles and Book Chapters, 1997, vol. 112, issue 3, 791–824

Abstract: We use store-level data to document the exact process of changing prices and to directly measure menu costs at five multistore 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 percent of revenues, 35.2 percent 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 that require a separate price tag on each item) changes prices two and one-half 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 (search for similar items in EconPapers)
Date: 1997
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Citations: View citations in EconPapers (118)

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Related works:
Working Paper: The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains (2005)
Journal Article: The Magnitude of Menu Costs: Direct Evidence from Large U. S. Supermarket Chains (1997)
Working Paper: The Magnitude of Menu Costs: Direct Evidence from Large U. S. Supermarket Chains (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:espost:206762

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