Prices for cash and cash for prices? Theory and evidence on convenient pricing

Abstract

ACL-2International audienceA transaction between a seller and a buyer incurs a payment cost. The payment cost is borne by the seller, depending on the payment instrument the buyer chooses, cash or card. Card payment is more costly than cash payment, so the seller prefers that the buyer pays cash. In this article, we study the strategy of the seller setting a convenient price, which simplifies transactions and pushes the buyer to pay cash. The theoretical analysis, which models both the seller and the buyer in a game setting, derives two propositions: (1) the seller is more likely to set a more convenient price and (2) the buyer is more likely to pay cash a more convenient price. The empirical analysis supports both propositions. Thus, sellers adopt a convenience pricing strategy - prices for cash - and this strategy pushes buyers to pay cash - cash for prices

Psychological prices at retail gasoline stations: the policies of 0-, 5-, and 9-ending prices

“…Results consistently show that price digits act as signals and consumers indeed change their purchasing behavior depending on a product's price (Coulter and Coulter, 2007;Macé, 2012;Schindler, 2006;Schindler and Wiman, 1989). This purchasing behavior may be explained by the level effect, consumers truncate least significant digit(s), by the image effect, certain trailing digits, 9 most commonly, are associated with discounts (Gedenk and Sattler, 1999;Stiving and Winer, 1997), or by price convenience, which make cash payment easier (Chenavaz et al, 2018;Karoubi and Chenavaz, 2015;Knotek, 2011). However, the effect may be a function of the overall product price, and the effect tends to diminish as price increases (Coulter and Coulter, 2005;Coulter and Norberg, 2009;Hackl et al, 2014).…”

“…We study psychological prices in gasoline using French retail data. Psychological prices are prices with a trailing digit that induces particular consumer behavior (Aalto-Setälä and Halonen, 2004;Chenavaz et al, 2018;Karoubi and Chenavaz, 2015;Kleinsasser and Wagner, 2011;Knotek, 2011;Levy et al, 2004;Macé, 2012;Manning and Sprott, 2009;Wieseke et al, 2016). One argument for psychological prices is that prices that end in whole numbers, 0, are more expensive than those that end is odd numbers, 5 or 9 (Aalto-Setälä and Halonen, 2004;Kleinsasser and Wagner, 2011;Manning and Sprott, 2009).…”

“…As such, prices ending in odd numbers may be used to signal to consumers product value (Hoffman et al, 2002;Schindler, 2006). Round price, ending with 0, have the advantage to be more convenient for cash payments, expediting transactions (Chenavaz et al, 2018;Karoubi and Chenavaz, 2015;Knotek, 2011). Conceptually, psychological prices make sense; however, the literature is mixed, as discussed in Section 2.…”