Cover Story: How the Pandemic Era Changed Price-Setting

For consumers, the prices of goods and services may seem to emerge from a black box. But behind those prices are complex judgments that firms are making about demand and about the competition, often based on limited information. Pricing decisions may also reflect uncertain assessments of the future costs of inputs. On top of that are seemingly irrational factors, like consumers' common preference for prices ending in a "9," perceiving $29.99 as markedly more appealing than $30. While price-setting is challenging even in normal times, shocks during the past few years, such as the pandemic and inflation, have made it harder. How did these changes affect price-setting? And are these changes defining a new normal, or are firms trending back to their old ways?