When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws

37 Pages Posted: 21 Feb 2006

See all articles by Mark E. Bergen

Mark E. Bergen

University of Minnesota - Carlson School of Management

Daniel Levy

Bar-Ilan University - Department of Economics; Emory University - Department of Economics; International School of Economics at Tbilisi State University; Rimini Centre for Economic Analysis; International Centre for Economic Analysis

Sourav Ray

University of Guelph, Gordon S. Lang School of Business and Economics

Paul H. Rubin

Emory University - Department of Economics

Benjamin Zeliger

Cornell University - Law School

Multiple version iconThere are 2 versions of this paper

Date Written: February 19, 2006

Abstract

Item pricing laws (IPLs) require a price tag on every item sold by a retailer. We study IPLs and assess their efficiency by examining and quantifying their costs and comparing them to their measurable benefits. On the cost side, we posit that IPLs should lead to higher prices because they increase the cost of pricing as well as the cost of price adjustment. We test this prediction using data collected from large supermarket chains in the Tri-State area of New York, New Jersey and Connecticut, which offer a unique setting because these states vary in their use of IPLs, but otherwise offer geographical proximity with each other and similar markets, supermarket chains, and socioeconomic environments. We find that IPL store prices are higher by about 20¢-25¢ or 8.0%-9.6% per item on average, in comparison to non-IPL stores. As a control, we use data from stores that are exempted from IPL requirements (because they use electronic shelf labels), and find that their prices fall between IPL and non-IPL store prices. To assess the efficiency of IPLs, we compare these costs to existing measures of the benefits of IPLs. Specifically, we study the frequency and magnitude of pricing errors, which the IPLs are supposed to prevent. We find that the IPLs' costs are an order of magnitude higher than these benefits.

Keywords: Item Pricing Law, Cost of Item Pricing Law, Cost of Price Adjustment, Menu Cost, Retail Pricing

JEL Classification: K20, L11, L81, E31, L51, D21, D40

Suggested Citation

Bergen, Mark E. and Levy, Daniel and Ray, Sourav and Rubin, Paul H. and Zeliger, Benjamin, When Little Things Mean a Lot: On the Inefficiency of Item Pricing Laws (February 19, 2006). Emory Law and Economics Research Paper No. 04-08, Emory Public Law Research Paper No. 06-11, Available at SSRN: https://ssrn.com/abstract=885906 or http://dx.doi.org/10.2139/ssrn.885906

Mark E. Bergen

University of Minnesota - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States
612-624-1821 (Phone)

Daniel Levy (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 5290002
Israel
+972 3 531-8345 (Phone)
+972 3 738-4034 (Fax)

HOME PAGE: http://econ.biu.ac.il/en/levy

Emory University - Department of Economics ( email )

1602 Fishburne Drive, Suite 306
Rich Building
Atlanta, GA 30322-0001
United States

HOME PAGE: http://economics.emory.edu/home/people/faculty/biography/levy-daniel.html

International School of Economics at Tbilisi State University ( email )

16 Zandukeli Street
Tbilisi, 0108
Georgia

Rimini Centre for Economic Analysis ( email )

Rimini
Italy

HOME PAGE: http://https://www.rcea.world/

International Centre for Economic Analysis ( email )

Wilfrid Laurier University
75 University Ave W.
Waterloo, Ontario N2L3C5
Canada

HOME PAGE: http://https://iceanet.org/

Sourav Ray

University of Guelph, Gordon S. Lang School of Business and Economics ( email )

Macdonald Institute Building
50 Stone Road East
Guelph, Ontario N1G 2W1
Canada

Paul H. Rubin

Emory University - Department of Economics ( email )

1350 Main Steet #1703
Sarasota, FL 34236
United States
14049310493 (Phone)

HOME PAGE: http://www.economics.emory.edu/Rubi.htm

Benjamin Zeliger

Cornell University - Law School ( email )

Myron Taylor Hall
Cornell University
Ithaca, NY 14853-4901
United States

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