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99: are retailers best responding to rational consumers? Experimental evidence

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Author Info
Bradley J. Ruffle (Department of Economics, Ben-Gurion University, P.O.B. 653, Beer Sheva 84105, Israel)
Ze'ev Shtudiner (Department of Economics, Ben-Gurion University, P.O.B. 653, Beer Sheva 84105, Israel)

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Abstract

There exist numerous theories that attempt to explain the ubiquitous 99-cent price ending. Most of these theories either do not hold up to inspection or posit irrational consumers who serve as a money pump for firms. We offer an experimental test of Basu's (Econ. Lett. 1997; 54:41-44) rational expectations equilibrium model in which consumers are fully rational. We find partial support for Basu's model. Convergence to the 99-cent equilibrium is faster and more widespread when firms are able to observe the previous pricing decisions of others. By imitating the optimal 99-cent price endings of rational firms, less rational firms display an 'as if' rationality. Copyright © 2006 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1282
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 27 (2006)
Issue (Month): 6 ()
Pages: 459-475
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Handle: RePEc:wly:mgtdec:v:27:y:2006:i:6:p:459-475

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Noussair, Charles N & Plott, Charles R & Riezman, Raymond G, 1995. "An Experimental Investigation of the Patterns of International Trade," American Economic Review, American Economic Association, vol. 85(3), pages 462-91, June. [Downloadable!] (restricted)
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  2. Mark Isaac, R. & McCue, Kenneth F. & Plott, Charles R., 1985. "Public goods provision in an experimental environment," Journal of Public Economics, Elsevier, vol. 26(1), pages 51-74, February. [Downloadable!] (restricted)
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  1. Basu, Kaushik, 2004. "Consumer Cognition and Pricing in the 9's in Oligopolistic Markets," Working Papers 04-04, Cornell University, Center for Analytic Economics. [Downloadable!]
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  2. Levy, Daniel & Lee, Dongwon & Chen, Allan (Haipeng) & Kauffman, Robert & Bergen, Mark, 2007. "Price Points and Price Rigidity," MPRA Paper 1472, University Library of Munich, Germany. [Downloadable!]
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