Price Points and Price Rigidity

Levy, Daniel and Lee, Dongwon and Chen, Haipeng (Allan) and Kauffman, Robert and Bergen, Mark (2007): Price Points and Price Rigidity.

Abstract

We offer new evidence on the link between price points and price rigidity using two datasets. One is a large weekly transaction price dataset, covering 29 product categories over an eight-year period from a large U.S. supermarket chain. The other is from the Internet, and includes daily prices over a two-year period for 474 consumer electronic goods covering ten product categories, from 293 different Internet retailers. Across the two datasets, we find that (i) 9 is the most frequently used price-ending for the penny, dime, dollar and the ten-dollar digits, (ii) the most common price changes are in multiples of dimes, dollars, and ten-dollars, (iii) 9-ending prices are at least 24% (and as much as 73%) less likely to change in comparison to prices ending with other digits, and (iv) the average size of the price change is higher if the price ends with 9 in comparison to non-9-ending prices. This link between price points and price rigidity is robust across a wide range of prices, products, product categories, and retail formats. We offer a behavioral explanation for the findings.

• Item Type: MPRA Paper
• Institution: Bar-Ilan University, Korea University, Texas A&M University, University of Minnesota, and University of Minnesota
• Language: English
• Keywords: Price Point; 9-Ending Price; Price Rigidity; Rational Inattention; E-Commerce
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M3 - Marketing and Advertising > M30 - General; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change ; Industrial Price Indices; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M2 - Business Economics > M21 - Business Economics; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation

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