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The End of .99 Pricing

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by

mwkruse
in ,

Victor Claar's Economics Blog: The End of .99 Pricing

Economists have long been interested in the phenomenon of 99-cent pricing: prices that are given so that they end in .99, rather than at the next whole dollar amount. For example, in many contexts it is much more likely that you will see an item selling for $3.99 rather than an even $4.00.

Economists are curious about this real-world phenomenon since the idea that the psychology of a price starting with "3" instead of "4" makes a difference flies in the face of the fairly standard rationality assumptions made on the part of consumers. That is, consumers aren't stupid, so they should recognize immediately that the difference between $3.99 and $4.00 is precisely one cent–the same as the difference between $4.00 and $4.01.

There is a fairly rich, expanding literature on 99-cent pricing. …

Once we get 99-cent pricing figured out, I'd also love to know how Amazon prices its books. Is there any psychological angle, or is it purely economic considerations?

Whatever the case, I hope the round number model takes hold.

Comments

6 responses to “The End of .99 Pricing”

  1. Victor V Claar Avatar
    Victor V Claar

    I have one suspicion about my own book’s pricing on Amazon. Seems like it has about 3 different possible prices. Depending on when you look, it might be $14.96, $16.50, or $17.16.
    My ad hoc speculation is that Amazon is pretty aware that it’s easy for us online shoppers to compare prices. So — though it might be counter-intuitive — I think they charge lower prices when demand grows, to make sure we buy from them and not somebody else with a lower price.
    After all, the book is the same no matter where you buy it, so better charge a lower price than the competition.
    This is not unlike the “putting turkeys on sale when people need them most: Thanksgiving” strategy. If they’ll buy one regardless, better to have them buy one from your store, then hang around to buy their other groceries, too.
    I could be dead wrong in this Amazon speculation, but it definitely seems that the price of my own book is lower at the beginnings of semesters than at other times, when college and seminary students are picking it up for their classes.

    Reply
  2. Michael W. Kruse Avatar
    Michael W. Kruse

    Fascinating! It makes good sense to me.

    Reply
  3. Katherine Avatar
    Katherine

    “Whatever the case, I hope round number model takes hold.”
    I also hope that model would help lead to the elimination of the penny, which is past its time IMO.

    Reply
  4. Michael W. Kruse Avatar
    Michael W. Kruse

    Amen, Katherine.

    Reply
  5. ceemac Avatar
    ceemac

    Any idea when the .99 strat started.
    If it was 100 yrs ago then the difference between .99 and $1 may have been signficant. If you are making only a couple of $ a day then a penny is a big deal
    Today it may be $5 instead of a penny that has the same psych. effect. Example: I just checked the ipod shuffle at Walmart. It’s $45. Not $50.

    Reply
  6. Victor V Claar Avatar
    Victor V Claar

    “The Straight Dope” covered the history of the practice several years ago. It’s not really my specific area of expertise in economics, so I’ll defer to Mr Adams:
    http://www.straightdope.com/columns/read/720/why-do-prices-end-in-99

    Reply

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