ABSTRACT
If menu costs of changing price 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 an extensive survey of firms in New Zealand support this hypothesis. Ordered probit analysis indicates that the effect comes primarily from larger firms being more likely than smaller firms to raise price in response to a demand or cost increase and not from a greater likelihood of lowering price in response to a demand or cost decrease.
