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99 cent: Price points in e-commerce

  • Hackl, Franz
  • Kummer, Michael E.
  • Winter-Ebmer, Rudolf

Basu (2006) argues that the prevalence of 99 cent prices in shops can be explained with rational consumers who disregard the rightmost digits of the price. This bounded rational behaviour leads to a Bertrand equilibrium with positive markups. We use data from an Austrian price comparison site and find results highly compatible with Basu's theory. We can show that price points - in particular prices ending in 9 - are prevalent and have significant impact on consumer demand. Moreover, these price points are sticky; neither the price-setter itself wants to change them neither the rivals do underbid these prices, if they represent the cheapest price on the market.

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Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 10-022.

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Date of creation: 2010
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Handle: RePEc:zbw:zewdip:10022
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  1. John Morgan & Tanjim Hossain, 2006. "...plus shipping and handling: Revenue (non) equivalence in field experiments on ebay," Natural Field Experiments 00270, The Field Experiments Website.
  2. Daniel Levy & Dongwon Lee & Haipeng (Allan) Chen & Robert J. Kauffman & Mark Bergen, 2010. "Price Points and Price Rigidity," Emory Economics 1008, Department of Economics, Emory University (Atlanta).
  3. Christie, William G & Harris, Jeffrey H & Schultz, Paul H, 1994. " Why Did NASDAQ Market Makers Stop Avoiding Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1841-60, December.
  4. Konieczny, Jerzy (Jurek) D. & Rumler, Fabio, 2006. "Regular adjustment: theory and evidence," Working Paper Series 0669, European Central Bank.
  5. Erik Brynjolfsson & Michael D. Smith, 2000. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Management Science, INFORMS, vol. 46(4), pages 563-585, April.
  6. Michael D. Smith & Erik Brynjolfsson, 2001. "Consumer Decision-making at an Internet Shopbot: Brand Still Matters," NBER Chapters, in: E-commerce, pages 541-558 National Bureau of Economic Research, Inc.
  7. Martin Eichenbaum & Nir Jaimovich & Sergio Rebelo, 2011. "Reference Prices, Costs, and Nominal Rigidities," American Economic Review, American Economic Association, vol. 101(1), pages 234-62, February.
  8. Oded Palmon & Barton A. Smith & Ben J. Sopranzetti, 2004. "Clustering in Real Estate Prices: Determinants and Consequences," Journal of Real Estate Research, American Real Estate Society, vol. 26(2), pages 115-136.
  9. Eric Anderson & Duncan Simester, 2003. "Effects of $9 Price Endings on Retail Sales: Evidence from Field Experiments," Quantitative Marketing and Economics, Springer, vol. 1(1), pages 93-110, March.
  10. Nicola Lacetera & Devin G. Pope & Justin R. Sydnor, 2012. "Heuristic Thinking and Limited Attention in the Car Market," American Economic Review, American Economic Association, vol. 102(5), pages 2206-36, August.
  11. Stiving, Mark & Winer, Russell S, 1997. " An Empirical Analysis of Price Endings with Scanner Data," Journal of Consumer Research, University of Chicago Press, vol. 24(1), pages 57-67, June.
  12. Lynn, Michael & Flynn, Sean Masaki & Helion, Chelsea, 2013. "Do consumers prefer round prices? Evidence from pay-what-you-want decisions and self-pumped gasoline purchases," Journal of Economic Psychology, Elsevier, vol. 36(C), pages 96-102.
  13. Kaushik Basu, 2006. "Consumer Cognition and Pricing in the Nines in Oligopolistic Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 125-141, 03.
  14. Anil K Kashyap, 1994. "Sticky Prices: New Evidence from Retail Catalogs," NBER Working Papers 4855, National Bureau of Economic Research, Inc.
  15. Manoj Thomas & Vicki Morwitz, 2005. "Penny Wise and Pound Foolish: The Left-Digit Effect in Price Cognition," Journal of Consumer Research, University of Chicago Press, vol. 32(1), pages 54-64, 06.
  16. Uwe Dulleck & Franz Hackl & Bernhard Weiss & Rudolf Winter‐Ebmer, 2011. "Buying Online: An Analysis of Shopbot Visitors," German Economic Review, Verein für Socialpolitik, vol. 12(4), pages 395-408, November.
  17. Christie, William G & Schultz, Paul H, 1994. " Why Do NASDAQ Market Makers Avoid Odd-Eighth Quotes?," Journal of Finance, American Finance Association, vol. 49(5), pages 1813-40, December.
  18. Kaiser, Ulrich & Song, Minjae, 2009. "Do media consumers really dislike advertising? An empirical assessment of the role of advertising in print media markets," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 292-301, March.
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