Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity
Bar Ilan University - Department of Economics
Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis
Open University of Israel
Haipeng (Allan) Chen
Texas A&M University
October 26, 2012
Emory Law and Economics Research Paper, Forthcoming
There is evidence that 9-ending prices are more common and more rigid than other prices. We use data from three sources: a laboratory experiment, a field study, and a large US supermarket chain, to study the cognitive underpinning and the ensuing asymmetry in rigidity associated with 9-ending prices. We find that consumers use 9-endings as a signal for low prices, and that this signal interferes with price information processing. Consequently, consumers are less likely to notice a bigger price when it ends with 9, or a price increase when the new price ends with 9, in comparison to a situation where the prices end with some other digit. We also find that retailers respond strategically to this consumer bias by setting 9-ending prices more often after price increases than after price decreases. 9-ending prices, therefore, usually increase only if the new prices are also 9-ending. Consequently, there is an asymmetry in the rigidity of 9-ending prices: they are more rigid than non 9-ending prices upward but not downward.
Number of Pages in PDF File: 35
Keywords: Price Points, Price Recall, Sticky Prices, Rigid Prices, Price Adjustment, 9-Ending
JEL Classification: E31, L16, C91, C93, D03, D80, M31
Date posted: October 28, 2012
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