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

  • Avichai Snir

    ()

    (Department of Banking and Finance, Netanya Academic College, Israel)

  • Daniel Levy

    ()

    (Department of Economics, Bar-Ilan University, Israel; Department of Economics, Emory University, USA; The Rimini Centre for Economic Analysis, Italy)

  • Alex Gotler

    ()

    (Department of Education and Psychology, Open University, Israel)

  • Haipeng (Allan) Chen

    ()

    (Department of Marketing, Mays Business School, Texas A&M University, USA)

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 9ending. 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 The Rimini Centre for Economic Analysis in its series Working Paper Series with number 69_12.

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Date of creation: Nov 2012
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Handle: RePEc:rim:rimwps:69_12
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