Behavioral Pricing Constrains Tariff Pass-Through

Samuel D. Hirshman and Anna Ignatenko

No 13056, CESifo Working Paper Series from CESifo

Abstract: How do firms transmit macroeconomic shocks to consumers through retail prices? We show that pricing frictions induced by behavioral biases play a central role in shaping how cost shocks pass-through to consumers. We document that import tariffs are transmitted primarily through prices that do not end in nine, while nine-ending prices exhibit substantially lower pass-through. After the tariffs, annual inflation is meaningfully larger for non-nine-ending priced products, even products that are not tariffed. These findings identify channels through which consumer biases constrain firms' responses to macroeconomic shocks.

Keywords: left-digit bias; pass-through; tariffs; behavioral pricing (search for similar items in EconPapers)
JEL-codes: D91 F13 F14 L11 M31 (search for similar items in EconPapers)
Date: 2026
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