> The Role of Price Endings: Why Stores May Sell More at $49 than at $44
> This joint Chicago/MIT study, utilizing a large catalog field test,
> found that increasing the price of an item from $44 to $49 may actually
> increase demand of that item (quantity demanded for the anal-retentive
> on the List) by up to 30%. This paradox is related to the "fact" that
> $9 price endings lead to favorable customer price perceptions and
> increased customer demand. However, overuse of the $9 price ending
> dilutes this effect, as does the simultaneous use of sale signs.
> J. Morrison
Actually, when the greater quantity is bought at $49, it does indeed
increase the demand, not the quantity demanded. When the price is raised
to $50 from $49, the Q demanded falls. When the price falls from $49 to
$48, it is the demand that shifts in, because the perception is that this
is a different good. Try to reduce a price of a good that is familiar and
has been selling at $49 to $48 and see if the quantity demanded declines.
People won't knowingly throw away money unless they enjoy the throwing.
Fred Foldvary
