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Not All Price Endings are Created Equal: Price Points and Asymmetric Price Rigidity

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  • Avichai Snir
  • Daniel Levy
  • Alex Gotler
  • Haipeng (Allen) Chen

Abstract

There is evidence that 9-ending prices are more common and more rigid than other prices. We use data from three sources: a laboratory experiment, a field study, and a large U.S. supermarket chain, to study the cognitive underpinning and the ensuing asymmetry in rigidity associated with 9-ending prices. We find that consumers use 9-endings as a signal for low prices, and that this signal interferes with price information processing. Consequently, consumers are less likely to notice a bigger price when it ends with 9, or a price increase when the new price ends with 9, in comparison to a situation where the prices end with some other digit. We also find that retailers respond strategically to this consumer bias by setting 9-ending prices more often after price increases than after price decreases. 9-ending prices, therefore, usually increase only if the new prices are also 9-ending. Consequently, there is an asymmetry in the rigidity of 9-ending prices: they are more rigid than non-9-ending prices upward but not downward.

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Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 1206.

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Date of creation: Oct 2012
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Handle: RePEc:emo:wp2003:1206

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