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Inside Johnson

To the Editor

Editor's note: The following exchange refers to an article about a study co-authored by Johnson School and Cornell faculty that appeared in Newsmakers in the spring 2008 issue of Cornell Enterprise, "Selling your house? Use a precise price."

To Professors Manoj Thomas, Vrinda Kadiyali and Daniel Simons: I too have experienced the effect of "precise pricing," but for different reasons and it seems to work. In making offers or counteroffers, I get better results with $8.83 per share rather than $9.00 per share. In face-to-face negotiations, when asked for a counter, I would tap away at my computer or calculator for precisely 3 1/2 minutes and come up with $8.83 per share. I guess it's harder to argue with precision. - Stewart A. Merkin, MBA '82, Law Office of Stewart A. Merkin, P.A., Miami, Fla.

Vrinda Kadiyali, Professor of Marketing and Economics, wrote this response: A previous version of our paper did have this explanation in it, too. Here are some possible reasons why houses with precise prices sell for more than houses with round prices:

1) We associate precision with smaller magnitudes (the main point of our paper).

2) We might associate precision with a carefully calculated list price and hence a non-negotiable list price (which is the point made by Stewart).

3) We might associate precise price with being the lowest cost. For example, if Wal-Mart sells a bag of tube socks for $4.26, we might think they've shaved every last cent they could off the price.

While explanations 2 and 3 might happen too, our paper examines 1 in most detail. Especially, our experiment shows that we still get the effect from 1 even if the effects of 2 and 3 are ruled out.


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