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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...

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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
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creator	Ruffle, Bradley J. Shtudiner, Ze'ev
description	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.
doi_str_mv	10.1002/mde.1282
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source	International Bibliography of the Social Sciences (IBSS); Business Source Ultimate; JSTOR Archival Journals and Primary Sources Collection; Wiley-Blackwell Read & Publish Collection
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
title	99: are retailers best responding to rational consumers? Experimental evidence
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