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

By Avichai Snir, Daniel Levy, Alex Gotler and Haipeng (Allan) Chen


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.

Topics: L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices, D03 - Behavioral Economics; Underlying Principles, M31 - Marketing, E31 - Price Level; Inflation; Deflation, D80 - General, C93 - Field Experiments, C91 - Laboratory, Individual Behavior
Year: 2012
DOI identifier: 10.2139/ssrn.2167662
OAI identifier: oai:mpra.ub.uni-muenchen.de:42252

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