Price Developments after a Nominal Shock: Benford's Law and Psychological Pricing after the Euro Introduction
Posted: 23 Feb 2011
Date Written: 2005
Retail managers use psychological pricing to make the prices of goods appear to be just below a round number. The euro introduction in 2002, with its various exchange rates, distorted existing nominal price patterns while at the same time retaining real prices. We studied consumer prices before and after the euro introduction by using Benford's Law as a benchmark for price adjustments. Results indicate the usefulness of this benchmark for detecting irregularities in prices, and a clear trend towards psychological pricing after the nominal shock of the euro introduction. In addition, the tendency towards psychological prices results in different inflation rates in dependence of the price pattern.
Keywords: retail pricing, price endings, digital analysis
JEL Classification: E31
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