Why do businesses engage in 99-cent pricing, forcing us to give and take those useless pennies? The common answer is, “It’s a sales gimmick. The customer perceives $9.99 being cheaper than $10.00.” From an economic point of view, this contradicts the theory of rationality, since it implies customers, over the long run, are too ignorant to tell the difference between $9.99 and $10.00.Might there be a better explanation? In other words, how does 99-cent pricing serve someone’s interests? Here is how economist Steven Landsburg explained the phenomenon of 99-cent pricing, in his book
The Armchair Economist: Economics and Everyday Life: