Directive Prohibiting the Use of Deceptive Pricing

In November 2013, a new directive was issued by the Israeli Agency of Consumer Protection and Fair Trade declaring the use of deceptive pricing (pricing something at NIS 0.99 for example, since the Israeli agora valued at NIS 0.01 has been cancelled) a violation of the Israeli Consumer Protection Law. This directive has been enforced since January of 2014. At the time, there was a question as to how product prices would be affected by the new directive. Four main options were possible from the point of view of the retailers:
  1. Rounding-up of prices (e.g., from NIS 9.99 to NIS 10)
  2. Rounding-down of prices (e.g., from NIS 9.99 to NIS 9.90)
  3. Increased prices, based on the retailers’ assumption that since the price of NIS 9.99 was no longer a legal option, there was no real difference between increasing the price to NIS 10 or to NIS 11.
  4. Non-compliance, keeping prices inconsistent with the new directive.
ADALYA examined the potential impact of the directive on prices. The source of data was the Israeli Consumer Council, a government company dedicated to protecting consumers' rights in the Israeli market. The data was collected from 3,000 inspections made from November of 2013 through March of 2014. The analysis included 32 products from 11 different categories (hygiene, dairy products etc.), in 12 different regions in Israel and in 24 chain stores. The statistical model used employed the SPSS program. For each product examined in December and January that had an existing "actual January price" and “an expected January price" (each final price that was examined in December and January was rounded so that if the unit digit was between 1 and 4, the product was rounded down and all others were rounded upwards). We examined whether the difference between the two prices, if there was one, was statistically significant: that is, indicating a 95% certainty that the difference was not random. For this, a non-parametric test, Wilcoxon, was used for a paired sample, examining the price differences following rounding and comparing the expected January price to the actual January price.
 
The first encouraging finding was that chain stores responded rapidly to the new directives. In more than 90% of the examined stores in 2014, no evidence of the deceptive pricing custom of using NIS 0.99 was found. As expected, the category of low prices of up to NIS 19.99 was characterized by a relatively high rate of violation of the new directive.
 
The second finding about prices observed a significant trend of price reductions for most examined products in most regions and among most of the population. The average reduction in January was about 2.5%. However, price increases or price-fixing were observed in other months.
 
Note that despite the natural tendency to attribute the reduction in prices to the new directive, there is no statistical proof of a causal relationship. Price reductions in food retail chain stores could certainly result from other factors. Therefore, the study findings could be summarized as, "no reinforcement was found to the assumption that the new directive caused prices to increase as a result of prices rounding-up."
 
Beyond the statistical findings, it is possible to draw another important conclusion from the ending of the deceptive pricing that had that existed for many years. As observed, it appears that it is indeed possible to implement actions which save money for Israeli consumers, and with the nearly full cooperation of the chain stores.

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