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Small price changes and menu costs

Author

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  • Saul Lach

    (The Hebrew University of Jerusalem, Israel and CEPR)

  • Daniel Tsiddon

    (Tel Aviv University, Israel and CEPR)

Abstract

We find that while some individual price changes are indeed 'small', the average price change of different products within a store in any given month is not. Moreover, the smaller the price change of an individual product, the larger the average price change of the remaining products sold by the store. We argue that these findings are consistent with extensions of menu cost models of price-setting behavior to multiproduct firms when these firms have high average costs and low marginal costs of changing prices. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Saul Lach & Daniel Tsiddon, 2007. "Small price changes and menu costs," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 649-656.
    • Handle: RePEc:wly:mgtdec:v:28:y:2007:i:7:p:649-656
    DOI: 10.1002/mde.1383
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    References listed on IDEAS

    as
    1. Levy, Daniel & Bergen, Mark & Dutta, Shantanu & Venable, Robert, 1997. "The Magnitude of Menu Costs: Direct Evidence from Large U.S. Supermarket Chains," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 112(3), pages 791-824.
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    5. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-389, April.
    6. Cecchetti, Stephen G., 1986. "The frequency of price adjustment : A study of the newsstand prices of magazines," Journal of Econometrics, Elsevier, vol. 31(3), pages 255-274, April.
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    8. Agnès Sulem, 1986. "Explicit Solution of a Two-Dimensional Deterministic Inventory Problem," Mathematics of Operations Research, INFORMS, vol. 11(1), pages 134-146, February.
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