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

Mark Bergen, Daniel Levy (), Sourav Ray, Paul Rubin () and Benjamin Zeliger
Additional contact information
Mark Bergen: University of Minnesota
Sourav Ray: McMaster University
Benjamin Zeliger: Cornell University

Law and Economics from University Library of Munich, Germany

Abstract: We study item-pricing laws (which require that each item in a store be individually marked with a price sticker) and examine and quantify their costs and benefits. On the cost side, we argue that item-pricing laws increase the retailers’ costs, forcing them to raise prices. We test this prediction using data on retail prices from large supermarket chains in the Tri-State area of New York, New Jersey and Connecticut. The Tri-States offer a unique setting—a natural experiment—to study item-pricing laws because the States vary in their use of item-pricing laws, but otherwise offer similar markets and chains operating in a close proximity to each other in a relatively homogenous socioeconomic environment. We use two datasets, one emphasizing the breadth in coverage across products and the other across stores. We find consistent evidence across products, product categories, stores, chains, states, and sampling periods, that the prices at stores facing item-pricing laws are higher than the prices at stores not facing the item pricing laws by about 25¢ or 9.6% per item. We also have data from supermarket chains that would be subject to item-pricing laws but are exempted from item pricing requirement because they use costly electronic shelf label systems. Using this data as a control, we find that the electronic shelf label store prices fall between the item-pricing law and non-item- pricing law store prices: they are lower than the item-pricing law store prices by about 15¢ per item on average, but are higher than the non- item-pricing law store prices by about 10¢ per item on average. On the benefit side, we study the frequency and the magnitude of supermarket pricing errors, which the item-pricing laws are supposed to prevent. We quantify the benefits of the IPLs by conservatively assuming that they successfully accomplish their mission of preventing all price mistakes. Comparing the costs of item-pricing laws to their benefits, we find that the item-pricing law costs are at least an order of magnitude higher than the benefits.

Keywords: Item Pricing Laws; Costs of Item Pricing Laws; Benefits of Item Pricing Laws; Cost of Price Adjustment; Pricing Accuracy; Electronic Shelf Label System; Pricing Regulation; Cost of Pricing; Supermarket Chains (search for similar items in EconPapers)
JEL-codes: K20 L11 L81 E31 M20 M30 Q11 D40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law
Date: 2004-05-27, Revised 2005-06-02
Note: Type of Document - pdf; pages: 67
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Citations: View citations in EconPapers (4) Track citations by RSS feed

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https://econwpa.ub.uni-muenchen.de/econ-wp/le/papers/0405/0405005.pdf (application/pdf)

Related works:
Journal Article: When Little Things Mean a Lot: On the Inefficiency of Item-Pricing Laws (2008) Downloads
Working Paper: When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws (2006) Downloads
Working Paper: When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws (2004) Downloads
Working Paper: When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws (2004) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwple:0405005

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