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A Comment on "Price-Endings When Prices Signal Quality"

Author

Listed:
  • Robert Shoemaker

    (Stern School of Business, New York University, 44 West 44th Street, New York, New York 10012-1126)

  • Debanjan Mitra

    (College of Business Administration, University of Florida, Gainesville, Florida 32611)

  • Yuxin Chen

    (Stern School of Business, New York University, 44 West 44th Street, New York, New York 10012-1126)

  • Skander Essegaier

    (The Wharton School, University of Pennsylvania, 3730 Walnut, Philadelphia, Pennsylvania 19104)

Abstract

Stiving (2000) proposes an interesting model to explain price-endings. His analysis shows that even when customer demand increases at 9-ending price points, certain firms that use high prices to signal quality are more likely to set those prices at round numbers. This comment raises two issues about the model. First, it appears that the original paper imposes a condition that has the effect of eliminating a broad range of legitimate separating equilibria from the analyses. Second, it appears that the original model does not include constraints to ensure that the demand for each market segment will be nonnegative. When these constraints on demand are included, one obtains different aggregate demand curves, which leads to different equilibrium prices. Using the revised model and analysis, we find that 71% of the prices end in 9 and only 12% in 0. This contrasts with only 3% ending in 9 and 58% ending in 0 for the original study. Therefore, 9-endings still prevail even though high prices can be used by firms to signal high quality.

Suggested Citation

  • Robert Shoemaker & Debanjan Mitra & Yuxin Chen & Skander Essegaier, 2003. "A Comment on "Price-Endings When Prices Signal Quality"," Management Science, INFORMS, vol. 49(12), pages 1753-1758, December.
    • Handle: RePEc:inm:ormnsc:v:49:y:2003:i:12:p:1753-1758
    DOI: 10.1287/mnsc.49.12.1753.25118
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    References listed on IDEAS

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    1. Mark Stiving, 2000. "Price-Endings When Prices Signal Quality," Management Science, INFORMS, vol. 46(12), pages 1617-1629, December.
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    Cited by:

    1. Ding, Min & Ross, William T. & Rao, Vithala R., 2010. "Price as an Indicator of Quality: Implications for Utility and Demand Functions," Journal of Retailing, Elsevier, vol. 86(1), pages 69-84.
    2. Mitra, Debanjan & Fay, Scott, 2010. "Managing Service Expectations in Online Markets: A Signaling Theory of E-tailer Pricing and Empirical Tests," Journal of Retailing, Elsevier, vol. 86(2), pages 184-199.
    3. Mark Stiving, 2003. "Reply to "A Comment on `Price-Endings When Prices Signal Quality'"," Management Science, INFORMS, vol. 49(12), pages 1759-1760, December.

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