Eliminating the Penny in Canada: An Economic Analysis of Penny-Rounding on Grocery Items

Abstract

In theory, the nearest-nickel rounding scheme renders no financial gains for anyone given that each final digit has the same probability of appearing. However, in practice, rounding may yield non-zero net effects as most store prices end with nine. In this paper, price data from representative Canadian grocery stores are used to assess whether the current rounding system imposes a monetary loss on firms or consumers. Specifically, I evaluate how one- to ten-item purchases and the six different Canadian provincial sales tax rates influence penny-rounding. The results show that penny-rounding financially benefits the firms at the expense of the consumers, imposing a net transfer of approximately $3.27 million CAD from consumers to grocery vendors every year. This amount averages to $157 of additional revenue for a typical grocery store per year.