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Zero-Ending Prices, Cognitive Convenience, and Price Rigidity

Author

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  • Avichai Snir

    (Department of Economics, Bar-Ilan University, Israel)

  • Haipeng (Allan) Chen

    (Gatton College of Business and Economics, University of Kentucky, USA)

  • Daniel Levy

    (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; International School of Economics, Tbilisi State University, Georgia; International Centre for Economic Analysis; Rimini Centre for Economic Analysis)

Abstract

We assess the role of cognitive convenience in the popularity and rigidity of 0-ending prices in convenience settings. Studies show that 0-ending prices are common at convenience stores because of the transaction convenience that 0-ending prices offer. Using a large store-level retail CPI data, we find that 0-ending prices are popular and rigid at convenience stores even when they offer little transaction convenience. We corroborate these findings with two large retail scanner price datasets from Dominick’s and Nielsen. In the Dominick’s data, we find that there are more 0-endings in the prices of the items in the front-end candies category than in any other category, even though these prices have no effect on the convenience of the consumers’ check-out transaction. In addition, in both Dominick’s and Nielsen’s datasets, we find that 0-ending prices have a positive effect on demand. Ruling out consumer antagonism and retailers’ use of heuristics in pricing, we conclude that 0-ending prices are popular and rigid, and that they increase demand at convenience settings, not only for their transaction convenience, but also for the cognitive convenience they offer.

Suggested Citation

  • Avichai Snir & Haipeng (Allan) Chen & Daniel Levy, 2022. "Zero-Ending Prices, Cognitive Convenience, and Price Rigidity," Working Paper series 22-12, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:22-12
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    More about this item

    Keywords

    Cognitive Convenience; Transaction Convenience; Price Rigidity; Price Stickiness; Sticky Prices; Rigid Prices; 0-Ending Prices; Round Prices; Convenient Prices; 9-Ending Prices; Just Below Prices; Psychological Prices; Price Points;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General
    • M30 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - General

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