Why do prices end in .99?

Tim Harford, in his "Dear Economist" feature in this weekend's Financial Times, offers an explanation far afield from that I've always held as received knowledge, to wit: that it's to make you feel you're getting a better deal than if the dollar or pound amount were raised by one digit.

Wrong-o, says Harford.

Short column shorter: he says it's to force sales clerks and shop assistants to open their registers to make change, thereby lessening the chance that the customer, offering exact change of $5 or whatever, will receive the book in an "off the books" transaction, with the store employee pocketing the bill.

Most interesting and maybe even correct.

Here's the piece from the FT.

Where shoplifters should work

Dear Economist: I notice that your book "The Undercover Economist" has a list price of £17.99. In it you emphasise that rationality and calculation underlie economic behaviour. If so, why do so many prices end in .99? Do consumers really think that £17.99 is only £17?

Daniella Acker, via e-mail

Dear Daniella: A more likely explanation — from Steven Landsburg, an economist at the University of Rochester — is that these prices are designed not to exploit incompetence but to fight dishonesty.

A typical bookshop will experience a certain amount of shoplifting, especially of products as tempting as my book. Nobody is better placed to benefit from shoplifting than the shop assistants.

If books — or any products — were roundly priced at £10, £15 or £20, then customers would frequently offer the correct change. In such cases it would be simple for the shop assistant to bag the item without ringing it through the till, and to pocket the cash.

The book would appear to have been stolen by the customer, but this is a far more attractive proposition than trying to fence a stolen copy of "A La Recherche Du Temps Perdu" or even "The Undercover Economist" and the risk is probably lower. All rational shoplifters should get jobs in shops.

However, the more awkward the pricing, the more unlikely those thieving till-jockeys are to be able to pull off the trick. The customer will want change and is likely to challenge a shop assistant who reaches into his pocket to make it.

If this theory is true, then we should not expect to see those 99p endings in shops manned by their owners, nor at internet shops where shoplifting is impossible.

I note that the price of my book on Amazon ends not in .99 but .78.

....................

Well?

Is he right?