Not all price endings are created equal: Price points and asymmetric price rigidity

Levy, Daniel and Snir, Avichai and Gotler, Alex and Chen, Haipeng (Allan) (2019): Not all price endings are created equal: Price points and asymmetric price rigidity. Forthcoming in: Journal of Monetary Economics No. forthcoming

Abstract

We document an asymmetry in the rigidity of 9-ending prices relative to non-9-ending prices. Consumers have difficulty noticing higher prices if they are 9-ending, or noticing price-increases if the new prices are 9-ending, because 9-endings are used as a signal for low prices. Price setters respond strategically to the consumer-heuristic by setting 9-ending prices more often after price-increases than after price-decreases. 9-ending prices, therefore, remain 9-ending more often after price-increases than after price-decreases, leading to asymmetric rigidity: 9-ending prices are more rigid upward than downward. These findings hold for both transaction-prices and regular-prices, and for both inflation and no-inflation periods.

• Item Type: MPRA Paper
• Language: English
• Keywords: Asymmetric Price Adjustment, Sticky/Rigid Prices, 9-Ending Prices, Psychological Prices, Price Points, Regular/Sale Prices
• Subjects: C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C93 - Field Experiments; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; D - Microeconomics > D4 - Market Structure, Pricing, and Design; 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 > E0 - General > E03 - Behavioral Macroeconomics; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure ; Size Distribution of Firms; 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 > L2 - Firm Objectives, Organization, and Behavior > L21 - Business Objectives of the Firm; 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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