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Zero-Ending Prices, Cognitive Convenience, and Price Rigidity

Snir, Avichai and Chen, Haipeng (Allan) and Levy, Daniel (2022): Zero-Ending Prices, Cognitive Convenience, and Price Rigidity. Forthcoming in: Journal of Economic Behavior and Organization No. (Forthcoming)

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Abstract

We assess the role of cognitive convenience in the popularity and rigidity of 0-ending prices in convenience settings. Studies show that 0-ending prices are common at convenience stores because of the transaction convenience that 0-ending prices offer. Using large store-level retail CPI data, we find that 0-ending prices are popular and rigid at convenience stores even when they offer little transaction convenience. We corroborate these findings with two large retail scanner price datasets from Dominick’s and Nielsen. In Dominick’s data, we find that there are more 0-endings in the prices of the items in the front-end candies category than in any other category, even though these prices do not affect the convenience of the consumer’s check-out transaction. In addition, in both Dominick’s and Nielsen datasets, we find that 0-ending prices have a positive effect on demand. Ruling out consumer antagonism and retailers’ use of heuristics in pricing, we conclude that 0-ending prices are popular and rigid, and that they increase demand in convenience settings, not only for their transaction convenience but also for the cognitive convenience they offer.

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