Which price is right? A comparison of three standard approaches to measuring prices

Prices are fundamental to economists, but there is little guidance on how to collect accurate data on prices in developing countries. I compare antimalarial drug prices collected using three different approaches at outlets in Uganda: vendor inventory listings, prices reported by real customers, and standardized patient (“mystery shopper”, or SP) purchases. I find that prices collected from SPs and real customers are the same after accounting for the composition of drugs purchased, but prices reported by vendors are $0.29-$0.34 (17 percent) lower than the other two approaches. Price disagreement is correlated with vendors reporting fewer drugs on the inventory. The analysis suggests vendors adjust list prices based upon transaction-specific characteristics, but much price disagreement is unexplained. I conclude SP purchases are a preferred approach to price measurement: they accurately capture mean prices paid by customers, and other important transaction characteristics.