Consumer Cognition and Pricing in the 9's in Oligopolistic Markets
30 Pages Posted: 14 Dec 2004
Date Written: December 2004
Abstract
The paper fully characterizes the Bertrand equilibria of oligopolistic markets where consumers may ignore the last (i.e. the right-most) digits of prices. Consumers, in this model, do not do this reflexively or out of irrationality, but only when they expect the time cost of acquiring full cognizance of the exact price to exceed the expected loss caused by the slightly erroneous amounts that is likely to be purchased or the slightly higher price that may be paid by virtue of ignoring the information concerning the last digits of prices.
It is shown that in this setting there will always exist firms that set prices that end in nine though there may also be some (non-strict) equilibria where a non-nine price ending occurs. It is shown that all firms earn positive profits even in Bertrand equilibria. The model helps us understand in what kinds of markets we are most likely to encounter pricing in the 9's.
JEL Classification: D43, L13
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Bank Deposit Rate Clustering: Theory and Empirical Evidence
By Charles M. Kahn, George Pennacchi, ...
-
99: Are Retailers Best Responding to Rational Consumers? Experimental Evidence
By Bradley J. Ruffle and Ze'ev Shtudiner
-
Penny Wise, Dollar Foolish: Buy-Sell Imbalances On and Around Round Numbers
By Utpal Bhattacharya, Craig W. Holden, ...
-
Heuristic Thinking and Limited Attention in the Car Market
By Nicola Lacetera, Devin G. Pope, ...
-
Heuristic Thinking and Limited Attention in the Car Market
By Nicola Lacetera, Devin G. Pope, ...
-
Clustering in Real Estate Prices: Determinants and Consequences
By Oded Palmon, Barton A. Smith, ...
-
Nines in the Endings of Stock Prices
By Mark Bagnoli, Jinyoung Park, ...
-
Interest Rate Clustering in UK Financial Services Markets
By John Kevin Ashton and Robert Hudson