Menu costs, firm size and price rigidity

If menu costs have a non-negligible lump-sum component and with larger firms having greater benefits from price adjustments, then larger firms will change price more frequently than smaller firms. Data from New Zealand firms support this hypothesis. Price duration decreases as firm size increases. Ordered probit analysis indicates the effect comes primarily from larger firms being more Likely than smaller firms to raise price in response to a demand or cost increases. (C) 2000 Elsevier Science S.A. All rights reserved.