Price setting behaviour of manufacturing firms in South Africa

Abstract

The literature on price setting has developed extensively in the last decade; albeit predominantly focused on the price setting behaviour of developed countries. This study reviews the survey results of price setting behaviours in the manufacturing sector within a developing economy. More than two thirds of manufacturing firms in South Africa purely follow time-dependent pricing rules; which, when compared to the results of surveys conducted in other international studies is almost three times as much, approximately one third of firms allow for components of state-dependent pricing rules.Higher input costs (cost of raw materials and labour costs) are the most important driver behind price increases. Declining market share is the most important factor behind price reductions. Firms review their prices more often than they actually change them. The median firm in this study has only adjusted its prices twice in the last 12 months.Co-ordination failure and temporary shocks are the most important sources of price stickiness. Mark-up pricing and price discrimination are common practices amongst South African manufacturing firms. The quality of a firm‟s product followed by its price is most important in determining the firm‟s level of competitiveness. Manufacturing firms in South Africa generally adopt a barometric price leadership strategy when setting their prices.