$9.99: Can "Just-Below" Pricing Be Reconciled with Rationality?
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Abstract
A common explanation for the prevalence of "just-below" pricing is that consumers irrationally perceive a price such as $9.99 as significantly lower than $10. This paper offers an alternative explanation that preserves rationality: rational consumers may not include price endings in their considerations because the costs of doing so outweigh the benefits. The model is tested employing a data set consisting of catalog prices, characteristics of goods and advertising traits. We find that the pattern of "just-below" pricing is consistent with both profit-maximizing producers and utility-maximizing consumers.