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Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity

35 Pages Posted: 28 Oct 2012  

Avichai Snir

Bar Ilan University - Department of Economics

Daniel Levy

Bar-Ilan University - Department of Economics; Emory University - Department of Economics; Rimini Center for Economic Analysis

Alex Gotler

Open University of Israel

Haipeng (Allan) Chen

Texas A&M University

Date Written: October 26, 2012

Abstract

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.

Keywords: Price Points, Price Recall, Sticky Prices, Rigid Prices, Price Adjustment, 9-Ending

JEL Classification: E31, L16, C91, C93, D03, D80, M31

Suggested Citation

Snir, Avichai and Levy, Daniel and Gotler, Alex and Chen, Haipeng (Allan), Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity (October 26, 2012). Emory Law and Economics Research Paper, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2167662 or http://dx.doi.org/10.2139/ssrn.2167662

Avichai Snir

Bar Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+972 3 736 0835 (Phone)
+972 3 535 3180 (Fax)

Daniel Levy (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 5290002
Israel
+972 3 531-8345 (Phone)
+972 3 738-4034 (Fax)

HOME PAGE: http://econ.biu.ac.il/en/levy

Emory University - Department of Economics ( email )

1602 Fishburne Drive, Suite 306
Rich Building
Atlanta, GA 30322-0001
United States

HOME PAGE: http://economics.emory.edu/home/people/faculty/Levydaniel.html

Rimini Center for Economic Analysis ( email )

Via Patara, 3
Rimini (RN), RN 47900
Italy

HOME PAGE: http://www.rcfea.org/

Alex Gotler

Open University of Israel ( email )

Tel Aviv 61392
Israel

Haipeng (Allan) Chen

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4218
United States

HOME PAGE: http://mays.tamu.edu/directory/individual.php?eid=631

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