$9.99: Can "Just-Below" Pricing Be Reconciled with Rationality?
AbstractA common explanation for the prevalence of "just-below" pricing is that consumers irrationally perceive a price such as $9.99 as significantly lower than $10. This paper offers an alternative explanation that preserves rationality: rational consumers may not include price endings in their considerations because the costs of doing so outweigh the benefits. The model is tested employing a data set consisting of catalog prices, characteristics of goods and advertising traits. We find that the pattern of "just-below" pricing is consistent with both profit-maximizing producers and utility-maximizing consumers.
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Bibliographic InfoArticle provided by Eastern Economic Association in its journal Eastern Economic Journal.
Volume (Year): 22 (1996)
Issue (Month): 2 (Spring)
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Consumer; Pricing; Rationality;
Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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