The Effect of .99 Price Endings on Consumer Demand: An Example of Confounding Factors Surviving in Field Experiments

Abstract

The paper investigates the effect of .99 price endings on consumer demand by means of a field experiment. Results tail behind other contributions showing how .99-endings can be ineffective, casting doubts on their widespread use among retailers. When the .99-ending price is removed an increase of sales emerges from descriptive statistics as well as in a multivariate framework in which sales of the treated item are the only dependent variable. However, such a counterintuitive effect does not survive in a differences-in-differences model in which the daily sales of all the relevant substitutes are jointly analyzed. There is no evidence of any common shock during the treatment. In contrast, a different price-elasticity of demand drives the relative increase of sales of the treated item when prices of the substitutes are on average higher. Once the different reactions to price changes are taken into account, the treated item does not display significantly higher sales as compared to its substitutes when the .99-ending price is removed.