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

  • Snir, Avichai
  • Levy, Daniel
  • Gotler, Alex
  • Chen, Haipeng (Allan)

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 US 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 University Library of Munich, Germany in its series MPRA Paper with number 42252.

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Date of creation: 26 Oct 2012
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Handle: RePEc:pra:mprapa:42252
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