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Price Points and Price Rigidity

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  • Daniel Levy

    (Bar-Ilan University, Israel and Emory University, USA and Rimini Centre for Economic Analysis, Rimini, Italy)

  • Dongwon Lee

    (Korea University)

  • Haipeng Allan Chen

    (University of Miami, USA)

  • Robert J. Kauffman

    (Arizona State University and University of Minnesota, USA)

  • Mark Bergen

    (University of Minnesota, USA)

Abstract

We offer new evidence on the link between price points and price rigidity using two datasets. One is a large weekly transaction price dataset, covering 29 product categories over an eight-year period from a large U.S. supermarket chain. The other is from the Internet, and includes daily prices over a two-year period for 474 consumer electronic goods covering ten product categories, from 293 different Internet retailers. Across the two datasets, we find that (i) 9 is the most frequently used price-ending for the penny, dime, dollar and the ten-dollar digits, (ii) the most common price changes are in multiples of dimes, dollars, and ten-dollars, (iii) 9-ending prices are at least 24% (and as much as 73%) less likely to change in comparison to prices ending with other digits, and (iv) the average size of the price change is higher if the price ends with 9 in comparison to non-9-ending prices. This link between price points and price rigidity is robust across a wide range of prices, products, product categories, and retail formats. We offer a behavioral explanation for the findings.

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Paper provided by The Rimini Centre for Economic Analysis in its series Working Paper Series with number 04-07.

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Date of creation: Jul 2007
Date of revision: Jul 2007
Handle: RePEc:rim:rimwps:04-07

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