Sticky Prices-Why Products Stay at The Same Prices

If you’ve ever wondered why consumer goods such as juices, noodles, or chips stay the same price, this is how.

This is how 10 rupees real juice used to look like before compared to how it looks like now.

Over time, because of price inflation, the cost of producing these products increases. Instead of increasing the price of the product and keeping the quantity the same, these companies decrease the quantity and keep the price the same.

This 10 rupees is a sticky price. Products like to be priced here because it is convenient to carry 10 rupees. Imagine if there was a product priced at 11 rupees. There would be a burden to carry the extra 1 rupee. People would simply buy its substitute which costs 10 rupees. Now, this is especially true for a large market segment of these products which is the rural and low-income consumers. Companies need to stick to these sticky prices to stay competitive.

So, next time you notice your quantity of food in a pack decreasing, you know why.