Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/206841
Authors: 
Zbaracki, Mark J.
Ritson, Mark
Levy, Daniel
Dutta, Shantanu
Bergen, Mark
Year of Publication: 
2004
Citation: 
[Journal:] Review of Economics and Statistics [ISSN:] 1530-9142 [Volume:] 86 [Issue:] 2 [Pages:] 514-533
Abstract: 
We study the price adjustment practices and provide quantitative measurement of the managerial and customer costs of price adjustment using data from a large U.S. industrial manufacturer and its customers. We find that price adjustment costs are a much more complex construct than the existing industrial-organization or macroeconomics literature recognizes. In addition to physical costs (menu costs), we identify and measure three types of managerial costs (information gathering, decision-making, and communication costs) and two types of customer costs (communication and negotiation costs). We find that the managerial costs are more than 6 times, and customer costs are more than 20 times, the menu costs. In total, the price adjustment costs comprise 1.22% of the company's revenue and 20.03% of the company's net margin. We show that many components of the managerial and customer costs are convex, whereas the menu costs are not. We also document the link between price adjustment costs and price rigidity. Finally, we provide evidence of managers' fear of antagonizing customers.
Subjects: 
Menu Cost
Cost of Price Adjustment
Sticky Prices
Rigid Prices
Price Rigidity
Customer Antagonization Cost
Convex Costs of Price Adjustment
Customer Costs of Price Adjustment
Managerial Costs of Price Adjustment,
JEL: 
E12
E31
L16
F31
F41
Published Version’s DOI: 
Document Type: 
Article
Document Version: 
Accepted Manuscript (Postprint)

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