99: Are Retailers Best Responding to Rational Consumers? Experimental Evidence

There exist numerous theories that attempt to explain the ubiquitous 99-cent price ending. Most of these theories either do not hold up to inspection or posit irrational consumers who serve as a money pump for firms. We offer an experimental test of Basu's (1997) rational expectations equilibrium model, an economic model of the phenomenon in which consumers are fully rational. We find ample support for Basu's model. Convergence to the 99-cent …