Menu Costs, Posted Prices, and Multiproduct Retailers*

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 4 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. Authors’ affiliations and ranks: SHANTANU DUTTA is associate professor of marketing at the University of Southern California, MARK BERGEN is associate professor of marketing at the University of Minnesota, DANIEL LEVY is associate professor of economics at Emory University, and Robert Venable is the vice president of equity research at Robert W. Baird, and Co.