Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity
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- MPRA Paper
- NonPeerReviewed
- L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices
- D03 - Behavioral Microeconomics: Underlying Principles
- M31 - Marketing
- E31 - Price Level ; Inflation ; Deflation
- D80 - General
- C93 - Field Experiments
- C91 - Laboratory, Individual Behavior