Menu Costs
The fixed costs businesses incur when changing prices, which can cause price stickiness.
What is Menu Costs?
Menu costs are the costs that firms incur when changing the prices of their goods or services — named after the literal cost of reprinting a restaurant's menu. Beyond printing, menu costs include updating price tags, revising catalogs and contracts, notifying customers, and reprogramming systems. Because these costs are fixed regardless of the size of the price change, firms may rationally choose to leave prices unchanged despite small changes in demand or costs, producing nominal price rigidity. Menu costs provide a microeconomic foundation for Keynesian price stickiness: even small menu costs can prevent the price adjustments that neoclassical models assume occur instantly, explaining persistent unemployment and output gaps during recessions.
Example
During moderate inflation of 3–5% per year, a supermarket with 30,000 SKUs faces the decision of whether to update every price tag and electronic shelf label. If the total cost of a system-wide price update is $50,000 and the revenue benefit from correct pricing is only $30,000 for a minor demand shift, rational inaction is preferred — keeping prices unchanged longer than perfect-market theory would predict.
Source: Investopedia — Menu Costs