The CICP Newsletter, Issues No. 15 & 16, June-July 1996

by Sophal Ear*

Are Cambodia's psah (markets) more or less competitive than those found elsewhere? When economists talk about competitiveness, the measures for such a descriptor are price and the number of sellers/buyers . The greater the number of sellers and buyers, the lower the price, the more competitive the market. Phnom Penh alone has ten markets: Psah Chah (Old), Psah Samakey, Psah Thmay (New), Psah Kandal (Central), Psah Depot, Psah Orasey, Psah Olympic, Psah Dumkor, Psah Kabko, Psah Tuol Tom Pong (Russian).** Together, these markets represent a level of commerce that is not commonly found alive in far more developed countries.

Shoppers in the U.S., indeed the Western world, go to supermarkets and shopping malls. These are places where prices are listed, and shoppers are asked simply to take it or leave it. "Sales," events when prices are said to be reduced, occur frequently enough to keep consumers coming back. Vanished are the indoor/outdoor markets (though France retains a few), and in their place are these supermarkets, shopping malls and now, increasingly, mega-stores.

The Cambodian psah, as any Cambodian shopper knows, is a place where bargains are struck. It is a place where we Cambodians expect to tauh tlay (bargain). In traditional microeconomic analysis, we know that with full information and competition, the resulting price should be the same as any equilibrium price derived from a perfectly functioning market where supply and demand meet. But there is, to be sure, no perfect information in the real world. Tourists fall victim to the asymmetry of information more often than not, and pay dearly for it.

On initial observation, it would appear that the cost of bargaining is one which is in itself inefficient. Why negotiate a price on moto-doob every time one rides? Static prices create economic stability--and surely it is easier to transact when prices are listed. To be sure, a moto-doob ride ranks among the least negotiable commodities for savvy residents, since an implicit understanding places the price of transportation at between 500 and 600 Riels for intra-city commutes. But for other commodities, when prices are literally listed, there is a said "menu cost" to changing them. For instance, when a restaurant changes prices, it changes the menu--so many restaurants in Phnom Penh and elsewhere choose instead to use dollars as their currency of payment as opposed to Riels.*** Others simply do not list prices at all. There are at least two reasons for this, one honest, the other dishonest. First, it is possible the restaurateur wishes to protect himself or herself from the volatility of price changes in any currency (though that is in itself dubious, since most people do use currency in everyday life, as opposed to bartering). Second, it is possible that the restaurateur wishes to price discriminate in a market of distinctly different consumers. This practice only works in the absence of information and secondary markets for resale.

Thus what may one logically conclude of the state of competition in Cambodia's markets? Cambodian markets, it would seem, are sophisticated and on the whole quite competitive. Yet, the fact that gasoline prices are not listed (on billboards) at any gas station suggests intentional information asymmetry is being used to keep consumers in the dark. The going price remains a big question mark until the consumer has already pulled his/her car into the gas station.

By that time, it is too late to pull out! It seems logical that if gas prices were advertised, real competition would arise. But no-one wants to do this, quite yet, and that only suggests one thing: that it is still sufficiently profitable not to do so.

Finally, when there is no potential for a gentlemen's agreement among sellers to keep consumers in the dark, in other places sellers of commodities also utilize information to discriminate between tourists and locals. While bargaining is a hassle and a transaction cost, it does not necessarily preclude a near-competitive outcome for locals and tourists. If not, there is to be sure no amoral reason for a person who has chosen to pay an amount for a service or good to complain if the derived utility from that good is equal to or greater than the price that person is willing to pay for it. At the same time, it is a perfectly rational profit-maximizing practice for sellers to segregate markets. However, it is also rational for sellers interested in credibility and reputation to list prices, even if these are high, such that everyone may know what they are expected to pay. As Cambodia's economy moves toward price stability and transparency, there will be one fewer reason for sellers to keep buyers guessing--and one fewer opportunity to exploit that uncertainty for profit.

In the May issue of The CICP Newsletter, No. 14, I wrote an article entitled "The Internet Comes to Cambodia". In a related insert entitled "The Economics of Cambodia's Telecom System: Digital Cellular Service and the Internet", I called upon the introduction of digital cellular service. The 12, 13, and 14 July 1996 edition of The Cambodia Daily features an advertisement for CamGSM's Mobitel, in which is announced "Cambodia's first GSM digital mobile [sic] phone service, will be launched in Phnom Penh later this year." GSM allows for 64kbps data transmission which is ample speed for end-users on the World Wide Web and the Internet. GSM also provides added security through encryption.

* Sophal Ear is currently a Research Fellow at the Cambodian Institute for Cooperation and Peace. Mr. Ear is an MPA candidate at the Wilson School, Princeton University. He is the managing editor of CICP's forthcoming Cambodian Journal of International Affairs. He also teaches a research course at CICP entitled "Inquiries Into the Cambodian Economy."

** See the Phnom Penh Post each week for the location of each market.

*** For those interested, see the May edition of The CICP Newsletter, No. 14, for more on dollarization, monetary independence, and inflation in Cambodia.