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Small Price Changes, Sales Volume, and Menu Cost

Author

Listed:
  • Doron Sayag

    (Department of Economics, Bar-Ilan University, Israel)

  • Avichai Snir

    (Department of Economics, Bar-Ilan University, Israel)

  • Daniel Levy

    (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; ICEA; ISET, TSU; Rimini Centre for Economic Analysis)

Abstract

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.

Suggested Citation

  • Doron Sayag & Avichai Snir & Daniel Levy, 2024. "Small Price Changes, Sales Volume, and Menu Cost," Working Paper series 24-02, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:24-02
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    References listed on IDEAS

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    More about this item

    Keywords

    Menu cost; (S; s) band; price rigidity; sticky prices; small price changes; small price adjustments; sales volume;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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