![]() Note the part: “I simulated how many items you buy”.“A penny for your thoughts” is an old idiom and its first written record was traced back in early fifteen century. Although individual prices are mentioned first, it’s also mentioned: However, the total value of your purchases is rounded to the nearest 5 cents when paying with cash (whereas when paying with a card there’s no MeadeĪlso, it’s worth noting that her assumption is that consumers only buy one item at a time. I think the assumption is that the stores won’t raise or lower any individual price. If raising prices would actually raise revenue for grocery stores, then why not do it even before the penny is eliminated? On a second look it appears that she predicted this would happen. At first I assumed that the study had showed that grocery stores usually rounded up after the penny was abolished. A penny for your not quite sure I understand what is being studied here. (Perhaps I am a horrible person.) But I’d like to think that my critique is a way of showing respect. ![]() I feel like a horrible person criticizing a paper by a 19-year old student that got published in a scholarly economics journal. In the early years of the country there was a half penny, but it was killed off in 1857 when it had roughly the purchasing power of a dime today. Why do we need small change filling up our pockets, and imposing heavy costs on the government? In 1913 the smallest coin was a penny, which was worth as much as a quarter is today. We got along just fine without a smaller coin. In 1973, the smallest coin was a penny, which was worth the same as a nickel is today. I strongly favor getting rid of the penny, and maybe even the nickel. Add in the fact that the grocery industry is pretty competitive, which means that if profits increased then the entry of new firms would also increase. There would have to be more than 4 increases from $9.99 to $10.00 for each cut from $9.99 to $9.95 in order for stores to get more revenue. Maybe I’m missing something, but I don’t see how this increases the revenue of grocery stores. If it’s truly a good strategy, then why not price at $XX.95? Wouldn’t the failure to do so cost sales dare I say “penny wise, pound foolish?” Sure, they’d lose 4 cents by doing that, but I notice that an increasing number of stores already just give me a few pennies for free to avoid the hassle of counting out each coin. But in that case, if the penny is removed then a non-cooperative firm could just lower the price to $9.95 and steal business away from other firms. Any firm that did not cooperate would steal business from other firms. If raising prices would actually raise revenue for grocery stores, then why not do it even before the penny is eliminated? One answer is that it’s a game theory problem this action only benefits stores if all firms raise prices from $9.99 to $10.00. I’m not quite sure I understand what is being studied here. She then made a discovery: a typical grocery store would earn an additional $157 of revenue from rounding each year. She excluded the volume of credit and debit card transactions, which aren’t affected by penny rounding. “I simulated depending on what province you’re in, what tax rate you have, and how many items you buy,” she said. She found 60.8 per cent of grocery store prices ended in 8 or 9.Ĭheung put those numbers through a computer simulation program that generated hypothetical purchases. A 19-year-old Canadian, Christina Cheung, has done a study of penny abolition in Canada and here are her findings: There is the danger that prices will be rounded up more than down. Tyler Cowen links to a recent study of Canadian grocery store pricing (the first three lines are Tyler):
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