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.

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