End of 9-Endings, Price Recall, and Price Perceptions

Snir, Avichai and Levy, Daniel and Chen, Haipeng (Allan) (2017): End of 9-Endings, Price Recall, and Price Perceptions. Forthcoming in: Economics Letters No. Forthcoming

Abstract

Prices that end with 9, also known as psychological price points, are common, comprising about 70% of the retail prices. They are also more rigid than other prices. We take advantage of a natural experiment to document an emergence of a new price ending that has the same effects as 9-endings. In January 2014, the Israeli government passed a new regulation prohibiting the use of non 0-ending prices, bringing an end to 9-ending prices. We find that seven months after 9-ending prices have disappeared, 90-ending prices acquired the same status as 9-ending prices had before the new regulation was adopted. Thus, 90-ending prices became the new psychological price points, partially eliminating the regulation’s intended effect.

• Item Type: MPRA Paper
• Language: English
• Keywords: 9-ending prices; psychological price points; price recall/perception; sticky/rigid prices; level/left-digit effect; image/right-digit effect; integer constraint; price control; price regulation
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D40 - General; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; K - Law and Economics > K2 - Regulation and Business Law > K20 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; L - Industrial Organization > L8 - Industry Studies: Services > L81 - Retail and Wholesale Trade ; e-Commerce; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M21 - Business Economics; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M31 - Marketing

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