How do markets behave? The adjustment of price endings

Abstract

PurposeNominal prices are known to have a distinct impact on pricing, which is normally seen in the form of 9‐ending prices. This article aims to study the effect of nominal prices on pricing patterns using data from a real‐life experiment: the currency changeover to the euro.Design/methodology/approachThe study examines quantitatively the impact of the euro changeover on the price endings used in grocery retailing.FindingsThe results show that the length of the price has a marked impact on price endings. The adjustment of price endings is also found to be a very slow process.Research limitations/implicationsThe study examines pricing two different market situations within one industry (grocery retailing) in one country (Finland) and shows that there is a difference between pricing patterns in different market situations. It is clear that more research is needed to obtain a more detailed picture of pricing patterns by studying diverse market situations.Originality/valueThis article gives a better understanding of the effect of price length on price endings based on real‐life data sets from before and after the euro changeover. The results are robust because the studied markets and, thus, the culture remained the same over the study period. Further, this article for the first time examines the adjustment of price endings in a market change caused by a currency changeover.

End of 9-endings, price recall, and price perceptions

“…The figures reported by Aalto-Setala (2005) suggest that the Finish experience was similar but in the reverse direction. Before the Euro changeover, the price level in Finland was similar to the price level in Israel.…”

“…They, however, study a theory of price rigidity, while we study shoppers' price recall and price perceptions. 3,4 A second related study is Aalto-Setala (2005), who studies another natural experiment, the Euro changeover (Ehrmann, 2012). He looks at the dynamic adjustment of retail price endings in Finland during and following the 2002 Euro transition.…”

Development of Finns’ price knowledge after the changeover to the euro

“…The slow recovery of price knowledge appears to be mainly due to the lack of such clear patterns of pricing as there were in the era of national currency. In other words, under the national currency the retailers had an established pricing system that was familiar to the consumers (see Aalto-Setä lä , 2005). Thus, the euro not only changed individual prices but also transformed the whole pricing process of the retailers.…”

“…The price knowledge of Finnish consumers has been monitored since the changeover to the euro, and the results have been reported in several papers (Aalto-Setä lä andRaijas 2003a, b, 2005;Anttila 2004). In the present study, we treat the consumers' price estimates as indicators of their price knowledge, both in themselves and in comparison with the actual market prices in grocery stores.…”

“…The changeover influenced the consumers' subjective valuation of money, price evaluations, and perceptions of price changes. It also stimulated price knowledge research in Europe (Jonas et al, 2002;Aalto-Setä lä andRaijas, 2003a, b, 2005;Anttila, 2004;Guido and Peluso, 2004;Marques and Dehaene, 2004;Gamble, 2006). Aalto-Setä lä and Raijas (2003a, b) and Marques and Dehaene (2004) found that the introduction of the euro resulted in a dramatic drop of the consumers' price knowledgeeven concerning frequently purchased groceries.…”