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

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  • 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)

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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Bibliographic 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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  1. Noussair, C.N. & Plott, C. & Riezman, R., 1995. "An experimental investigation of the patterns of international trade," Open Access publications from Tilburg University urn:nbn:nl:ui:12-387775, Tilburg University.
  2. Mark Isaac, R. & McCue, Kenneth F. & Plott, Charles R., 1985. "Public goods provision in an experimental environment," Journal of Public Economics, Elsevier, Elsevier, vol. 26(1), pages 51-74, February.
  3. Selten, Reinhard & Stoecker, Rolf, 1986. "End behavior in sequences of finite Prisoner's Dilemma supergames A learning theory approach," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 7(1), pages 47-70, March.
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Cited by:
  1. Daniel Levy & Dongwon Lee & Haipeng Allan Chen & Robert J. Kauffman & Mark Bergen, 2007. "Price Points and Price Rigidity," Working Paper Series, The Rimini Centre for Economic Analysis 04-07, The Rimini Centre for Economic Analysis, revised Jul 2007.
  2. Basu, Kaushik, 2004. "Consumer Cognition and Pricing in the 9's in Oligopolistic Markets," Working Papers, Cornell University, Center for Analytic Economics 04-04, Cornell University, Center for Analytic Economics.
  3. Avichai Snir & Daniel Levy & Alex Gotler & Haipeng (Allan) Chen, 2012. "Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity," Working Paper Series, The Rimini Centre for Economic Analysis 69_12, The Rimini Centre for Economic Analysis.

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