99: are retailers best responding to rational consumers? Experimental evidence

There exist numerous theories that attempt to explain the ubiquitous 99-cent price ending. Most of these theories either do not hold up to inspection or posit irrational consumers who serve as a money pump for firms. We offer an experimental test of Basu's (Econ. Lett. 1997; 54:41-44) rational...

Full description

Saved in:
Bibliographic Details
Published in:Managerial and decision economics 2006-09, Vol.27 (6), p.459-475
Main Authors: Ruffle, Bradley J., Shtudiner, Ze'ev
Format: Article
Language:English
Subjects:
Consumer behavior
Consumer behaviour
Consumer choice
Consumer economics
Consumer equilibrium
Consumer goods
Consumer preferences
Consumer prices
Experimental economics
Irrationality
Monopoly
Nash equilibrium
Price formation
Price policy
Pricing
Rational expectations
Retail stores
Retail trade
Ruffles
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:There exist numerous theories that attempt to explain the ubiquitous 99-cent price ending. Most of these theories either do not hold up to inspection or posit irrational consumers who serve as a money pump for firms. We offer an experimental test of Basu's (Econ. Lett. 1997; 54:41-44) rational expectations equilibrium model in which consumers are fully rational. We find partial support for Basu's model. Convergence to the 99-cent equilibrium is faster and more widespread when firms are able to observe the previous pricing decisions of others. By imitating the optimal 99-cent price endings of rational firms, less rational firms display an 'as if' rationality.
ISSN:0143-6570
1099-1468
DOI:10.1002/mde.1282