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

Posted by D. Daniel Sokol

Avichai Snir (Bar Ilan University – Department of Economics), Daniel Levy (Bar-Ilan University – Department of Economics, Emory University – Department of Economics, Rimini Center for Economic Analysis), Alex Gotler (Open University of Israel) and Haipeng (Allan) Chen (Texas A&M University) discuss how Not All Price Endings Are Created Equal: Price Points and Asymmetric Price Rigidity

ABSTRACT: 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.