Data From eBay Illustrates Pricing Quirk
June 8, 2015
The next time you go to sell or buy an item, pay attention to the message the price is sending. Discover reports that “The Last Two Digits of a Price Signal Your Desperation to Sell.” Researchers at UC Berkeley’s business school recently analyzed data from eBay, tracking original prices and speed of negotiations. Writer Joshua Gans shares a chart from the report, and explains:
“The chart shows that when the posted initial price is of a round number (the red dots), like $1,000, the average counteroffer is much lower than if it is a non-round number (the blue circles), like $1,079. For example, the graph suggests that you can actually end up with a higher counteroffer if you list $998 rather than $1,000. In other words, you are better off initially asking for a lower price if price was all you cared about. [Researchers] Backus et al postulate that what is going on here is ‘cheap talk’ – that is, an easy-to-make statement that may be true or untrue with no consequences for dishonesty – and not an otherwise reliable signal. There are some sellers who don’t just care about price and, absent any other way of signaling that to buyers, they set their price at a round number. Alternatively, you can think that the more patient sellers are using non-round numbers to signal their toughness. Either way, the last two digits of the price is cheap talk.”
Gans notes that prices ending in “99” are apparently so common that eBay buyers treat them the same as those ending in round numbers. The team performed a similar analysis on real estate sales data and found the same pattern: properties priced at round numbers sell faster. According to the write-up, real estate agents are familiar with the tendency and advise clients accordingly. Now you, too, can send and receive signals through prices’ last two digits.
Cynthia Murrell, June 8, 2015