Do psychological prices contribute to price rigidity? Evidence from German scanner data on food brands

Abstract

A substantial degree of price rigidity has been reported for branded foods in various studies with scanner data. One possible explanation for price rigidity is the existence of psychological pricing points. The authors analyze to what extent psychological pricing plays a role in grocery retailing and whether it contributes to the price rigidity of branded foods in Germany. Psychological pricing-defined here as just-below-the-round-figure-pricing-is empirically analyzed with scanner data of weekly prices for 20 food brands in 38 retail outlets from September 1996 to June 1999. Psychological pricing turned out to be extremely important in German food retailing. Branded food prices are remarkably sticky and psychological pricing points contribute strongly to price rigidity. Other factors like the sales phenomenon and firm-specific effects are additionally important. [EconLit Classifications: Q110, Q130]. © 2006 Wiley Periodicals, Inc. Agribusiness 22: 51-67, 2006.

Farmgate prices, retail prices, and supermarkets' pricing decisions: An integrated approach

“…Previous literature provides several explanations for food and agricultural price rigidity including the existence and magnitude of menu costs in the retail industry (e.g., Azzam, ; Dutta, Bergen, Levy, & Venable, ), the high incidence of indirect costs (Shonkwiler & Taylor, ), the facilitation of collusion (Richards & Patterson, ), legal liability and reputation (Levy, Dutta, Bergen, & Venable, ), and psychological prices (Herrmann & Moeser, ). Other work focuses on the relative bargaining power of suppliers and retailers in the market for a perishable product, such as fresh produce (Perez‐Mesa, Galdeano‐Gomez, & Aznar‐Sanchez, ; Sexton & Zhang, ).…”

Psychological pricing in online food retail

“…Later studies (e.g. Wisniewski and Blattberg, 1983; Stiving and Winer, 1997; Fengler and Winter, 2001; Herrmann and Moeser, 2006; Baumgartner and Steiner, 2007; Levy et al , 2011; Macé, 2012; Schroeder et al , 2016) show that nine-ending prices continue to be widespread in food retail, making up between 50% and more than 90% of all food prices. In other, non-food retail sectors, between 20 and 65% of all prices end in the digit 9 (Holdershaw et al , 1997; Schindler and Kirby, 1997; Stiving and Winer, 1997; Schindler, 2006).…”

Price rigidity and market power in German retailing

“…With respect to retailing in Europe, Herrmann and Moeser (2006) and Herrmann, Moeser and Weber (2005) provide empirical evidence on the overall importance of retail price rigidity and its determinants.…”