Why do prices end with 99p?

Maybe consumers are stupid and think 99p is a lot less than £1. That’s possible, especially if they’re French:

…according to a French study the phenomenon still swings a considerable number of shoppers. Researchers found that lowering the price of a pizza from 8.00 euros to 7.99 euros boosted sales by 15%.

An explanation more consistent with the assumption of hyper-rational consumers is that it’s an technique to deter theft by employees:

…cashiers had to open the till for change, reducing the chances of them pocketing the bill.

But perhaps not, according to Robert Schindler,  a marketing professor:

 ”I studied adverts in the New York Times from 1850 – where there were no 99 endings – to the 1870s and 1880s where they started to appear. Although department stores were doing it – which would fit with the cash register hypothesis – they were advertising discounts. But for the regular price they would use a round number,” he says.

The source is here.

Tim Harford’s blog

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Tim, also known as the Undercover Economist, writes about the economics of everyday life.