IDEAS home Printed from https://ideas.repec.org/a/kap/jincot/v18y2018i4d10.1007_s10842-018-0275-6.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10842-018-0275-6
    File Function: Abstract
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10842-018-0275-6?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hall, Simon & Walsh, Mark & Yates, Anthony, 2000. "Are UK Companies' Prices Sticky?," Oxford Economic Papers, Oxford University Press, vol. 52(3), pages 425-446, July.
    2. Blinder, Alan S, 1991. "Why Are Prices Sticky? Preliminary Results from an Interview Study," American Economic Review, American Economic Association, vol. 81(2), pages 89-96, May.
    3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    4. Bayoumi, Tamim & Laxton, Douglas & Pesenti, Paolo, 2004. "Benefits and spillovers of greater competition in Europe: a macroeconomic assessment," Working Paper Series 341, European Central Bank.
    5. Aucremanne, Luc & Druant, Martine, 2005. "Price-setting behaviour in Belgium: what can be learned from an ad hoc survey?," Working Paper Series 448, European Central Bank.
    6. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
    7. Makoto Hanazono & Huanxing Yang, 2007. "Collusion, Fluctuating Demand, And Price Rigidity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 483-515, May.
    8. Schmitt-Grohe, Stephanie & Uribe, Martin, 2004. "Optimal fiscal and monetary policy under imperfect competition," Journal of Macroeconomics, Elsevier, vol. 26(2), pages 183-209, June.
    9. Álvarez, Luis J. & Burriel, Pablo & Hernando, Ignacio, 2005. "Do decreasing hazard functions for price changes make any sense?," Working Paper Series 461, European Central Bank.
    10. Luis J. Álvarez & Ignacio Hernando, 2005. "The price setting behaviour of Spanish firms: evidence from survey data," Working Papers 0537, Banco de España.
    11. Peter J. Klenow & Oleksiy Kryvtsov, 2008. "State-Dependent or Time-Dependent Pricing: Does it Matter for Recent U.S. Inflation?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(3), pages 863-904.
    12. Schmitt-Grohe, Stephanie & Uribe, Martin, 2004. "Optimal fiscal and monetary policy under sticky prices," Journal of Economic Theory, Elsevier, vol. 114(2), pages 198-230, February.
    13. Luis J. Álvarez & Emmanuel Dhyne & Marco Hoeberichts & Claudia Kwapil & Hervé Le Bihan & Patrick Lünnemann & Fernando Martins & Roberto Sabbatini & Harald Stahl & Philip Vermeulen & Jouko Vilmunen, 2006. "Sticky Prices in the Euro Area: A Summary of New Micro-Evidence," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 575-584, 04-05.
    14. Mark Bils & Peter J. Klenow, 2004. "Some Evidence on the Importance of Sticky Prices," Journal of Political Economy, University of Chicago Press, vol. 112(5), pages 947-985, October.
    15. Rotemberg, Julio J & Saloner, Garth, 1987. "The Relative Rigidity of Monopoly Pricing," American Economic Review, American Economic Association, vol. 77(5), pages 917-926, December.
    16. Mihai Copaciu & Florian Neagu & Horia Braun-Erdei, 2010. "Survey evidence on price-setting patterns of Romanian firms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 235-247.
    17. Domberger, Simon, 1979. "Price Adjustment and Market Structure," Economic Journal, Royal Economic Society, vol. 89(353), pages 96-108, March.
    18. Greenslade, Jennifer & Parker, Miles, 2010. "New insights into price-setting behaviour in the United Kingdom," Bank of England working papers 395, Bank of England.
    19. Martin, Christopher, 1993. "Price adjustment and market structure," Economics Letters, Elsevier, vol. 41(2), pages 139-143.
    20. Apel, Mikael & Friberg, Richard & Hallsten, Kerstin, 2005. "Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 313-338, April.
    21. Luis J. Álvarez & Ignacio Hernando, 2006. "Competition and price adjustment in the euro area," Working Papers 0629, Banco de España.
    22. Sam Peltzman, 2000. "Prices Rise Faster than They Fall," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 466-502, June.
    23. Raquel Lago-González & Vicente Salas-Fumás, 2005. "Market power and bank interest rate adjustments," Working Papers 0539, Banco de España.
    24. Carlton, Dennis W, 1986. "The Rigidity of Prices," American Economic Review, American Economic Association, vol. 76(4), pages 637-658, September.
    25. Luc Aucremanne & Martine Druant, 2005. "Price-setting behaviour in Belgium: what can be learned from an ad hoc survey ?," Working Paper Research 65, National Bank of Belgium.
    26. Papke, Leslie E & Wooldridge, Jeffrey M, 1996. "Econometric Methods for Fractional Response Variables with an Application to 401(K) Plan Participation Rates," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 619-632, Nov.-Dec..
    27. Mamello Amelia Nchake & Lawrence Edwards & Neil Rankin, 2015. "Price-Setting Behaviour in Lesotho: Stylised Facts from Consumer Retail Prices," South African Journal of Economics, Economic Society of South Africa, vol. 83(2), pages 199-219, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alvarez González, Luis Julián, 2008. "What Do Micro Price Data Tell Us on the Validity of the New Keynesian Phillips Curve?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 2, pages 1-36.
    2. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
    3. Klenow, Peter J. & Malin, Benjamin A., 2010. "Microeconomic Evidence on Price-Setting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 6, pages 231-284, Elsevier.
    4. Emmanuel Dhyne & Jerzy Konieczny & Fabio Rumler & Patrick Sevestre, 2009. "Price rigidity in the euro area - An assessment," European Economy - Economic Papers 2008 - 2015 380, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    5. Hernando, Ignacio & Álvarez, Luis J., 2005. "The price setting behaviour of Spanish firms: evidence from survey data," Working Paper Series 538, European Central Bank.
    6. Martha Misas A. & Enrique López E. & Juan Carlos Parra A., 2013. "La formación de precios en las empresas colombianas: evidencia a partir de una encuesta directa," Investigación Conjunta-Joint Research, in: Laura Inés D'Amato & Enrique López Enciso & María Teresa Ramírez Giraldo (ed.), Dinámica inflacionaria, persistencia y formación de precios y salarios, edition 1, chapter 11, pages 273-348, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    7. Luis J. Álvarez & Emmanuel Dhyne & Marco Hoeberichts & Claudia Kwapil & Hervé Le Bihan & Patrick Lünnemann & Fernando Martins & Roberto Sabbatini & Harald Stahl & Philip Vermeulen & Jouko Vilmunen, 2006. "Sticky Prices in the Euro Area: A Summary of New Micro-Evidence," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 575-584, 04-05.
    8. Marco Hoeberichts & Ad Stokman, 2010. "Price setting behaviour in the Netherlands: results of a survey," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 135-149.
    9. Ahrens, Steffen & Pirschel, Inske & Snower, Dennis J., 2017. "A theory of price adjustment under loss aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 78-95.
    10. Marco Hoeberichts & Ad Stokman, 2010. "Price setting behaviour in the Netherlands: results of a survey," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(2-3), pages 135-149.
    11. Patrick Lünnemann & Thomas Mathä, 2006. "New survey evidence on the pricing behaviour of Luxembourg firms," BCL working papers 19, Central Bank of Luxembourg.
    12. Jennifer V. Greenslade & Miles Parker, 2012. "New Insights into Price‐Setting Behaviour in the UK: Introduction and Survey Results," Economic Journal, Royal Economic Society, vol. 122(558), pages 1-15, February.
    13. Laura Inés D'Amato & Enrique López Enciso & María Teresa Ramírez Giraldo (ed.), 2013. "Inflationary Dynamics, Persistence, and Prices and Wages Formation," Investigación Conjunta-Joint Research, Centro de Estudios Monetarios Latinoamericanos, CEMLA, edition 1, volume 1, number 2en, December.
    14. Philip Vermeulen & Daniel A. Dias & Maarten Dossche & Erwan Gautier & Ignacio Hernando & Roberto Sabbatini & Harald Stahl, 2012. "Price Setting in the Euro Area: Some Stylized Facts from Individual Producer Price Data," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(8), pages 1631-1650, December.
    15. Claire Loupias & Patrick Sevestre, 2013. "Costs, Demand, and Producer Price Changes," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 315-327, March.
    16. Filippo Altissimo & Michael Ehrmann & Frank Smets, 2006. "Inflation persistence and price-setting behaviour in the euro area – a summary of the IPN evidence," Occasional Paper Series 46, European Central Bank.
    17. Dhyne, Emmanuel & Fuss, Catherine & Pesaran, M. Hashem & Sevestre, Patrick, 2011. "Lumpy Price Adjustments: A Microeconometric Analysis," Journal of Business & Economic Statistics, American Statistical Association, vol. 29(4), pages 529-540.
    18. Silvia Fabiani & Martine Druant & Ignacio Hernando & Claudia Kwapil & Bettina Landau & Claire Loupias & Fernando Martins & Thomas Mathä & Roberto Sabbatini & Harald Stahl & Ad Stokman, 2006. "What Firms' Surveys Tell Us about Price-Setting Behavior in the Euro Area," International Journal of Central Banking, International Journal of Central Banking, vol. 2(3), September.
    19. Luis J. Álvarez & Emmanuel Dhyne & Marco Hoeberichts & Claudia Kwapil & Hervé Le Bihan & Patrick Lünnemann & Fernando Martins & Roberto Sabbatini & Harald Stahl & Philip Vermeulen & Jouko Vilmunen, 2006. "Sticky Prices in the Euro Area: A Summary of New Micro-Evidence," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 575-584, 04-05.

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jincot:v:18:y:2018:i:4:d:10.1007_s10842-018-0275-6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.