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

  • 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)

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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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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  1. Charles N. Noussair & Charles R. Plott & Raymond G. Riezman, 2013. "An Experimental Investigation of the Patterns of International Trade," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 17, pages 299-328 World Scientific Publishing Co. Pte. Ltd..
  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.
  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, vol. 7(1), pages 47-70, March.
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