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Price Points and Price Rigidity

  • Levy, Daniel
  • Lee, Dongwon
  • Chen, Haipeng (Allan)
  • Kauffman, Robert
  • Bergen, Mark

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 University Library of Munich, Germany in its series MPRA Paper with number 1472.

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Date of creation: 11 Jan 2007
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Handle: RePEc:pra:mprapa:1472
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