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99 cent: Price points in e-commerce

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

Abstract

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.

Suggested Citation

  • Hackl, Franz & Kummer, Michael E. & Winter-Ebmer, Rudolf, 2010. "99 cent: Price points in e-commerce," ZEW Discussion Papers 10-022, ZEW - Leibniz Centre for European Economic Research.
  • Handle: RePEc:zbw:zewdip:10022
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    References listed on IDEAS

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    Cited by:

    1. Glenn Ellison & Sara Fisher Ellison, 2017. "Search and Obfuscation in a Technologically Changing Retail Environment: Some Thoughts on Implications and Policy," NBER Chapters, in: Innovation Policy and the Economy, Volume 18, pages 1-25, National Bureau of Economic Research, Inc.
    2. Hackl, Franz & Hoelzl-Leitner, Michael & Winter-Ebmer, Rudolf & Zulehner, Christine, 2020. "Successful retailer strategies in price comparison platforms," CEPR Discussion Papers 14308, C.E.P.R. Discussion Papers.
    3. Snir, Avichai & Levy, Daniel, 2021. "If You Think 9-Ending Prices Are Low, Think Again," EconStor Open Access Articles, ZBW - Leibniz Information Centre for Economics.
    4. Ater, Itai & Gerlitz, Omri, 2017. "Round prices and price rigidity: Evidence from outlawing odd prices," Journal of Economic Behavior & Organization, Elsevier, vol. 144(C), pages 188-203.
    5. Marcial López-Pastor & Jesús García-Madariaga & Joaquín Sánchez & Jose Figueiredo, 2020. "Demand Impact for Prices Ending with “9” and “0” in Online and Offline Consumer Goods Retail Trade Channels," International Review of Management and Marketing, Econjournals, vol. 10(6), pages 58-78.
    6. Jeong, Ji Youn & Crompton, John L., 2017. "The use of odd-ending numbers in the pricing of five tourism services in three different cultures," Tourism Management, Elsevier, vol. 62(C), pages 135-146.
    7. Franz Hackl & Rudolf Winter-Ebmer, 2020. "Customer reactions to a webshop’s service quality," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 47(4), pages 699-731, November.
    8. Antonio Filippin, 2013. "The Effect of .99 Price Endings on Consumer Demand: An Example of Confounding Factors Surviving in Field Experiments," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 9(2), pages 211-229, July.
    9. Antonio FILIPPIN, 2009. "A field experiment on the effect of .99 price endings," Departmental Working Papers 2009-26, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.

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    More about this item

    Keywords

    Competitive Behaviour; Pricing Behaviour; E-Commerce; Pricing in the Nines; Focal Pricing;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D41 - Microeconomics - - Market Structure, Pricing, and Design - - - Perfect Competition
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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