End of 9-Endings and Price Perceptions

Abstract

We take advantage of a natural experiment to document an emergence of a new price ending that has the same effects as 9-endings. In January 2014, the Israeli parliament has passed a law prohibiting the use of non 0-ending prices. We find that one year after 9-ending prices have disappeared, 90-ending prices acquired the same status as 9-ending prices had before the law was passed. 90-ending prices became the new psychological price points. The retailers and the shoppers both reacted to the regulatory intervention optimally, which has eliminated the regulation’s intended effect.

Keywords: 9-ending prices, psychological price points, sticky prices, rigid prices, price recall, price control, price regulation, integer constraint

JEL Classification: E31, L16, K20