Consumer Price Rigidities in Lesotho: the Role of Outlet Characteristics and Competition

This paper extends the microeconomic empirical evidence on price setting in emerging economies using price and outlet survey data for Lesotho. Edwards, Nchake and Sundaram (2014) explore how price-setting behaviour differs by outlet size, location and type, and analyse various sources of price changes and price rigidities. They find that prices change more often in large outlets and less frequently in outlets where labour costs are an important component of costs. Implicit contracts with consumers and co-ordination failure in the setting of prices across competitors rank highly as sources of price rigidity, while menu costs and explicit contracts are found to be relatively unimportant. These results corroborate findings in advanced economies. However, contrary to theoretical expectations and other empirical findings, no consistent relationship between the frequency of price changes and the perceived competition in the market is found.