Recent survey evidence shows that European and U.S. rm-level frequency of price
reviews exceeds the frequency of price adjustment by a factor of 2 (at the median).
This pattern is conrmed by a host of statistics. We study a model of price setting that
is consistent with this behavior. In this model the rm has to pay a xed cost before
accessing information on the state of the economy. After acquiring the information, the
rm decides whether to pay a menu cost and adjust its price. As a consequence the
frequency of price review is higher than the frequency of price adjustment. We show
that rms optimally update their information only infrequently, and conditional on the
information received follow an () policy for the price adjustment. Moreover, we show
that the frequency of information acquisition is state dependent: the closer the rm is to
the () bands, the smaller the duration before next information revision. Firms that
decide to adjust their price are the ones that choose the largest duration before the next
revision. In addition, we show that the () policy of price adjustment depends on the
relative size of information and menu costs. The interaction of information and menu
costs has novel implications for the distribution of price changes, when compared to
standard menu cost models as Golosov and Lucas (2007), and to models of inattention
as Reis (2006). We present rm-level evidence for German, French and Italian rms
that is consistent with several predictions of the model.