One study from Robert M. Schindler, a professor of marketing at the Rutgers School of Business, cited by The New York Times says that consumers "perceive a 9-ending price as a round-number price with a small amount given back." In consumers' minds, the 99 acts as a cue that says, "This is a low price."
Other research suggests that "odd number pricing," in which prices fall just below a full dollar amount, creates the illusion that the item is cheaper than it really is.
"This gives the psychological impression to the customer that the price is not $0.20 or $0.50 or $20, but less," writes Gregory Passewitz in a paper published by the Southern Rural Development Center at Mississippi State University.
The 99 tactic was first used by R.H. Macy, founder of the eponymous department store, who advertised black silk for 99 cents in a newspaper in 1880, The New York Times reports.