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

Snir, Avichai and Levy, Daniel and Gotler, Alex and Chen, Haipeng (Allan) (2012): 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Price Points; Price Recall; Sticky Prices; Rigid Prices; Price Adjustment; 9-Ending Prices; Psychological Prices
• Subjects: L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M31 - Marketing; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C93 - Field Experiments; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior

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