Menu cost

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Template:Stickiness notion

This article defines a particular kind of transaction cost, i.e., an additional cost necessary for a particular market to function, or for certain market transactions to occur.
See other types of transaction costs

Definition

A menu cost is a cost associated with a seller communicating prices and product information, or changes in these, to potential buyers. This includes, for instance, the cost of printing a new menu, brochure or catalog, or updating information on a website.

The direct impact of a menu cost is usually on the seller, since conveying price and product information is the seller's responsibility.

Effects of menu costs

Menu costs create disincentives to make frequent changes in prices and products, leading to price stickiness and the market remaining in a regular state of disequilibrium. In general, the larger the menu costs, the less frequent the changes to prices and products.