Stuck at zero: price rigidity in a runaway inflation

Avichai Snir, Haipeng (Allan) Chen, Daniel Levy

We use micro level retail price data from convenience stores to study the link between 0-ending price points and price rigidity during a period of a runaway inflation, when the annual inflation rate was in the range of 60%-430%. Surprisingly, we find that 0-ending prices are less likely to adjust, and when they do adjust, the average adjustments are larger. These findings suggest that price adjustment barriers associated with round prices are strong enough to cause a systematic delay in price adjustments even in a period of a runaway inflation, when 85 percent of the prices change every month.

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Year of publication:	[2021]
Authors:	Snir, Avichai ; Chen, Haipeng ; Levy, Daniel C.
Publisher:	[Ramat-Gan, Israel] : [Bar Ilan University, Department of Economics]
Subject:	Sticky Prices \| Rigid Prices \| 0-Ending Price Points \| 9-Ending Price points \| Runaway Inflation \| Cost of Price Adjustment \| Menu Cost \| Invisible Handshake \| Implicit Contract \| Customer Market \| Long-Term Relationship \| Cost of Breaching a Contract \| Cost of Breaking a Contract \| Coca-Cola \| New Coke \| Exit \| Voice \| Loyalty \| Nickel Coke \| Sticky/Rigid Prices \| Cost of Quality Adjustment \| Preisrigidität \| Price stickiness \| Inflation \| Preismanagement \| Pricing strategy \| Anpassungskosten \| Adjustment costs \| Theorie \| Theory \| Kosten \| Costs \| Produktqualität \| Product quality \| Vertrag \| Contract