Studies the relationship between price setting behaviour and competition 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.
This research was funded under the Private Enterprise Development in Low-Income Countries (PEDL) Programme
Nchake, M., Edwards, L., Sundaram, A. Price-setting Behavior and Competition in Developing Countries: An Analysis of Retail Outlets in Lesotho. (2015) 27 pp