Price Competition and Market Transparency: Evidence from a Random Response Technique
17 Pages Posted: 30 Aug 2014
Date Written: July 20, 2013
Surveys can increase market transparency when information asymmetries are present — but this will only happen when respondents answer questions truthfully. Sometimes, however, it might not be in the respondents’ best interest to provide truthful information on their firm or market. This will be especially true when other firms can exploit any information they provide. Understanding when, and under what conditions, respondents answer questions truthfully is important to researchers studying these markets and to policymakers using firm surveys to identify ways of improving the business environment. Using data from two countries in South Asia, this paper uses a random response technique to identify respondents that do not answer truthfully. We label these respondents as ‘reticent’. We show that respondents become more reticent when their firms face intense price competition. We argue that this is because intense competition gives respondents a greater incentive to misreport information to reduce market transparency.
Keywords: survey reticence, anser bias, candour, market transparency, random response technique, asymmetric information, competition, price taker
JEL Classification: C80, C81, C83, C93, D82
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