Rubin on "Item Pricing Laws" in the WSJ

Cite this Article
Josh Wright, Rubin on "Item Pricing Laws" in the WSJ, Truth on the Market (March 10, 2007),

Paul Rubin (Emory Law) has an excellent piece in the WSJ taking state regulators to task for “Item Pricing Laws” which require that most goods in retail stores have an individual price sticker rather than, for example, a price tag on the store shelf. IPLs increase “menu costs” when retailers want to change prices which chills sales and are likely to increase prices. Luckily, one doesnt have to wait for the evidence because Professor Rubin and his co-authors have it. Here is a description of their study:

In order to estimate the effect of the laws on actual prices, an area where one could compare similar stores subject to different laws is best — and the tri-state region of suburban New York, New Jersey and Connecticut is ideal. This region has similar socioeconomic characteristics, and markets are comparable in many respects. New York is an IPL state and New Jersey is not. In Connecticut, stores must either have item prices or use electronic shelf labeling systems, so that there are some stores subject to IPLs and some stores that are not.

The results? As expected, the IPL’s increase prices:

Prices in IPL stores are 20 cents to 25 cents higher per item than in non-IPL stores. Stores in Connecticut with electronic shelf labels were in the middle, with prices 15 cents lower than in IPL stores, and 10 cents higher than in non-IPL stores — because electronic shelf labels are more expensive than old fashioned labels but cheaper than item pricing. All results are highly statistically significant. The maximum estimate of the benefit of avoiding overcharges to consumers through IPLs is less that one cent per item. The costs exceed 20 cents per item. The laws are a bad deal for consumers.

How significant are these price differences — about a quarter per item? The average price of the items in our sample was about $2.50, so there is a 10% difference. This implies that prices of groceries are almost 10% higher in IPL stores. Food represents about 14% of the average family’s budget. IPLs, therefore, reduce the real incomes of families by more than 1% — a nontrivial amount.

As mentioned in the WSJ op-ed, the study is co-authored with Mark Bergen, Daniel Levy, Sourav Ray, and Benjamin Zeliger and is forthcoming in the JLE.  As earlier draft of the paper is available on SSRN here.