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Two plus two equals six: an alternative explanation of why so many goods prices end in nine

Author

Listed:
  • David Demery
  • Nigel W. Duck

Abstract

The prevalence of prices ending in 99 cents is explained as the result of rational consumers rounding prices up. Monopolists are shown to be harmed by this practice whereas consumers may gain. The model is compared with two other models: Basu's (1997) model and one which assumes consumers round prices down.

Suggested Citation

  • David Demery & Nigel W. Duck, 2007. "Two plus two equals six: an alternative explanation of why so many goods prices end in nine," Bristol Economics Discussion Papers 07/598, School of Economics, University of Bristol, UK.
    • Handle: RePEc:bri:uobdis:07/598
    as

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    File URL: http://www.bristol.ac.uk/efm/media/workingpapers/working_papers/pdffiles/dp07598.pdf
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    References listed on IDEAS

    as
    1. Basu, Kaushik, 1997. "Why are so many goods priced to end in nine? And why this practice hurts the producers," Economics Letters, Elsevier, vol. 54(1), pages 41-44, January.
    2. 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, March.
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    More about this item

    Keywords

    Consumer rationality; price perception; pricing;
    All these keywords.

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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