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

Mamello A. Nchake (), Lawrence Edwards and Asha Sundaram
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Mamello A. Nchake: National University of Lesotho

Journal of Industry, Competition and Trade, 2018, vol. 18, issue 4, No 7, 529-547

Abstract: 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.

Keywords: Price rigidity; Competition; Survey data; Micro price data; Emerging economies (search for similar items in EconPapers)
JEL-codes: D22 D40 E30 L21 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/s10842-018-0275-6

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