Managerial and customer costs of price adjustment: Direct evidence from industrial markets

Mark J. Zbaracki, Mark Ritson, Daniel Levy, Shantanu Dutta, Mark Bergen

Research output: Contribution to journalReview articlepeer-review

223 Scopus citations


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.

Original languageEnglish
Pages (from-to)514-533
Number of pages20
JournalReview of Economics and Statistics
Issue number2
StatePublished - May 2004


Dive into the research topics of 'Managerial and customer costs of price adjustment: Direct evidence from industrial markets'. Together they form a unique fingerprint.

Cite this