All this time I've been living under the impression that there wasn't a Santa Claus
and that upward sloping demand curves were the unicorns of economic theory. Alas, I
was wrong.
The current presidential race had already convinced me that Santa Claus does in fact
exist afterall, and he even comes with a running mate. And now I've finished reading
the Anderson/Simester study (May 2000):
The Role of Price Endings: Why Stores May Sell More at $49 than at $44
First, Santa Claus - and now I've had to throw in the towel on upward sloping demand
curves as well.
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.
Furthermore, the study suggests that this is all a quite rational response to a
marketing cue.
Let's ponder the ramifications of this study. Now we have the possibility of parallel
demand and supply curves . . .the absence of an equilibrium price and quantity . .
.sacrilege!
J. Morrison
New York, NY
