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MANAGERIAL AND CUSTOMER COSTS OF PRICE ADJUSTMENT:
DIRECT EVIDENCE FROM INDUSTRIAL MARKETS
Mark J. Zbaracki, Mark Ritson, Daniel Levy, Shantanu Dutta, and Mark Bergen*
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......

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Approximate Word Count: 18342
Approximate Pages: 74 (250 words per double-spaced page)

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