The magnitude of menu costs: Direct evidence from large U. S. supermarket chains

Daniel Levy, Mark Bergen, Shantanu Dutta, Robert Venable

Research output: Contribution to journalArticlepeer-review

272 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)790-825
Number of pages36
JournalQuarterly Journal of Economics
Volume112
Issue number3
DOIs
StatePublished - Aug 1997

Fingerprint Dive into the research topics of 'The magnitude of menu costs: Direct evidence from large U. S. supermarket chains'. Together they form a unique fingerprint.

Cite this