Monday, August 20, 2012

Why Lao markets are not ready yet

When I studied economics, one of the most important topics was price development. I had a professor who skiped tradional theory and went straight with us to chaos theory as a base for predicting (and explaining) economic developments. At that time in the early 90s he was sure that price finding can be explained by chaos theory as well.
Today I went to Phimphone market, one of the more expensive minimarts, to buy Kraft cheese slices. They cost 29.000 KIP. Before, I went to M-Point Mart, where they ask for 32.000 Kip. That is a 10 percent price difference. You would expect that M-Point is cheaper, since the have more branches and therefore a bigger turnover. But they are not.
The price for a cup of coffee latte goes from 10.000 KIP (Tonmali Cake) to 21.000 KIP (Joma).
It seems that the chaos is there, and that the traditional market mechanisms aren't working. Otherwise the price range would be much closer. Most Lao businesses are guessing prices, do not have warehouse management, no real proper accounting (and cost management), so they just put some ammount of profit on top of the ammount they purchased. There is no observation of competitors.
So how does chaos can solve this? It just needs more players. And bigger ones. Once Big C comes in, retailers will check them out - because then they have to compete, because competiton is then obvious.
For now, the price is not set by the balance between supply and demand, but by gut feeling - a kind of chaotic situation as well.

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