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

Studies the relationship between price setting behaviour and competition where markets and information flows are relatively imperfect

Abstract

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

Citation

Nchake, M., Edwards, L., Sundaram, A. Price-setting Behavior and Competition in Developing Countries: An Analysis of Retail Outlets in Lesotho. (2015) 27 pp

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

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