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The Effect of .99 Price Endings on Consumer Demand: An Example of Confounding Factors Surviving in Field Experiments

  • Antonio Filippin

    ()

    (Dipartimento di Economia, Management e Metodi Quantitativi, Università degli Studi di Milano, Italy)

The paper investigates the effect of .99 price endings on consumer demand by means of a field experiment. Results tail behind other contributions showing how .99-endings can be ineffective, casting doubts on their widespread use among retailers. When the .99-ending price is removed an increase of sales emerges from descriptive statistics as well as in a multivariate framework in which sales of the treated item are the only dependent variable. However, such a counterintuitive effect does not survive in a differences-in-differences model in which the daily sales of all the relevant substitutes are jointly analyzed. There is no evidence of any common shock during the treatment. In contrast, a different price-elasticity of demand drives the relative increase of sales of the treated item when prices of the substitutes are on average higher. Once the different reactions to price changes are taken into account, the treated item does not display significantly higher sales as compared to its substitutes when the .99-ending price is removed.

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File URL: http://www.jem.org.tw/content/pdf/Vol.9No.2/06.pdf
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Article provided by College of Business, Feng Chia University, Taiwan in its journal Journal of Economics and Management.

Volume (Year): 9 (2013)
Issue (Month): 2 (July)
Pages: 211-229

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Handle: RePEc:jec:journl:v:9:y:2013:i:2:p:211-229
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  1. Franz Hackl & Michael E. Kummer & Rudolf Winter-Ebmer, 2010. "99 cent: Price Points in E-Commerce," Economics working papers 2010-02, Department of Economics, Johannes Kepler University Linz, Austria.
  2. Levy, Daniel & Lee, Dongwon & Chen, Haipeng (Allan) & Kauffman, Robert & Bergen, Mark, 2007. "Price Points and Price Rigidity," MPRA Paper 1472, University Library of Munich, Germany.
  3. Schindler, Robert M & Kirby, Patrick N, 1997. " Patterns of Rightmost Digits Used in Advertised Prices: Implications for Nine-Ending Effects," Journal of Consumer Research, University of Chicago Press, vol. 24(2), pages 192-201, September.
  4. Stiving, Mark & Winer, Russell S, 1997. " An Empirical Analysis of Price Endings with Scanner Data," Journal of Consumer Research, University of Chicago Press, vol. 24(1), pages 57-67, June.
  5. Baltagi, Badi H. & Wu, Ping X., 1999. "Unequally Spaced Panel Data Regressions With Ar(1) Disturbances," Econometric Theory, Cambridge University Press, vol. 15(06), pages 814-823, December.
  6. James Cui, 2007. "QIC program and model selection in GEE analyses," Stata Journal, StataCorp LP, vol. 7(2), pages 209-220, June.
  7. Kaushik Basu, 2006. "Consumer Cognition and Pricing in the Nines in Oligopolistic Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 125-141, 03.
  8. Manoj Thomas & Vicki Morwitz, 2005. "Penny Wise and Pound Foolish: The Left-Digit Effect in Price Cognition," Journal of Consumer Research, University of Chicago Press, vol. 32(1), pages 54-64, 06.
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