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Price-setting Behavior and Competition in Developing Countries: an Analysis of Retail Outlets in Lesotho

Author

Listed:
  • Mamello A. Nchake

    (National University of Lesotho
    University of Cape Town)

  • Lawrence Edwards

    (University of Cape Town)

  • Asha Sundaram

    (University of Cape Town)

Abstract

We study the relationship between price-setting behavior and the degree of competition in a setting where markets and information flows are relatively imperfect. Using a unique dataset that combines survey data on retail outlets in Lesotho, and detailed historical information on their product prices, we find a non-monotonic relationship between the frequency of price changes and perceived competition, measured by the number of reported competitors. This non-monotonic relationship is consistent with a model of increasing costs of coordinating price changes under tacit collusion with few competitors, and a breakdown of collusion at higher levels of competition. By exploring the nature of the relationship between competition and price rigidity, our study has implications for macroeconomic and competition policy, and underscores the scope for interaction between the two.

Suggested Citation

  • Mamello A. Nchake & Lawrence Edwards & Asha Sundaram, 2018. "Price-setting Behavior and Competition in Developing Countries: an Analysis of Retail Outlets in Lesotho," Journal of Industry, Competition and Trade, Springer, vol. 18(4), pages 529-547, December.
    • Handle: RePEc:kap:jincot:v:18:y:2018:i:4:d:10.1007_s10842-018-0275-6
    DOI: 10.1007/s10842-018-0275-6
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    More about this item

    Keywords

    Price rigidity; Competition; Survey data; Micro price data; Emerging economies;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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