Quantum pricing describes an extreme form of price stickiness in which firms place large numbers of goods into a comparatively small number of discrete price slots.[1] The term was coined by MIT economists Roberto Rigobon and Diego Aparicio, using the analogy of quantum mechanics, in which certain properties of subatomic particles have discrete values.[2]
Definition edit
Roberto Rigobon and Diego Aparicio define quantum prices as "the property of a firm's pricing strategy of using sparse, clustered, and sticky values, to price large and diverse product lines".[1] In other words, quantum pricing describes the strategy of firms to price goods (and often large numbers of different goods) into a small number of discrete prices slots (e.g. $9.99 and $19.99) rather vary the prices along a continuum (as happens, for example, with gasoline pricing).
Properties edit
In a paper analyzing hundreds of thousands of products at dozens of fashion retailers, economists Roberto Rigobon and Diego Aparicio found that "a large number of differentiated products are priced using few sparse prices, with price changes occurring rarely and in large magnitudes".[1] For example, British clothing retailers generally price large numbers of clothing items at £9.99 and £12.99— but not any values in between.[2] Furthermore, these prices are sticky, meaning they remain the same over extended periods of time rather than adjust sensitively to market conditions or adjust quickly to inflation.[1] When prices are raised, rather than going up gradually they are bumped up suddenly to the next discrete price value (for example, a £9.99 item will jump to £12.99).[2]
Quantum pricing also affects the behavior of firms. Aparicio and Rigobon posit that firms often design products to fit their preferred price points; firms will even redesign products so that they remain in their existing price slot if the cost of any factors of production rise (for example, increased labor costs might cause a firm that produces chocolate bars to reduce the size of the chocolate bar rather than nudge the price upwards).[2]
Quantum pricing may have negative consequences on economic data. As The Economist explains, "[s]tatistical agencies do their best to account for changing product quality, but if adjustments are unexpectedly common or subtle then muted inflation figures could easily be concealing a more turbulent economic picture".[2]
References edit
- ^ a b c d Rigobon, Roberto; Aparicio, Diego (21 July 2020). "Quantum Prices". National Bureau of Economic Research – via Social Science Research Network.
- ^ a b c d e "Prices for many goods do not move the way economists think they should". The Economist. 8 August 2019.