Holiday Price Rigidity and Cost of Price Adjustment (original) (raw)

Menu Costs, Posted Prices, and Multiproduct Retailers

Journal of Money, Credit, and Banking, 1999

We use a unique store-level data set to directly measure menu costs and to study the price change process at a large U.S. drugstore chain. We compare and contrast the magnitude of these measures with similar measures from four large U.S. supermarket chains. We find that (1) the actual magnitude of menu costs as a share of revenues, (2) menu costs per price change, (3) the frequent use of promotional pricing, and (4) the use of weekly pricing rules are similar across both retail formats. Given that the main common features of these two types of retail formats are that (i) they both use posted prices, and (ii) both are multiproduct retailers selling a large number of products, our findings suggest that the magnitude of the menu cost components we measure, and the price change practices we document, may be generalizable across retail formats with these two features.

Small Price Changes, Sales Volume, and Menu Cost

The finding of small price changes in many retail price datasets is often viewed as a puzzle. We show that a possible explanation for the presence of small price changes is related to sales volume, an observation that has been overlooked in the existing literature. Analyzing a large retail scanner price dataset that contains information on both prices and sales volume, we find that small price changes are more frequent when products’ sales volume is high. This finding holds across product categories, within product categories, and for individual products. It is also robust to various sensitivity analyses such as measurement errors, the definition of “small” price changes, the inclusion of measures of price synchronization, the size of producers, the time horizon used to compute the average sales volume, the revenues, the competition, shoppers’ characteristics, etc.

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

Managerial and Decision Economics, 2007

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.