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Central Bank working paper: Quality more important than price in T&T market

Thursday, July 10, 2014

In the T&T market, quality is more important than price, most companies alter their prices without publicly explaining why and prices are rigid, according to a Central Bank of T&T (CBTT) study released July 2 (2014). 


The paper, “Price Setting in T&T: Evidence from Survey Data” is authored by Reshma Mahabir, Keyra Primus, Delvin Cox, Vishana Jagessar and Crystal Neptune. The authors are economists who at the time were attached to the CBTT research department. 


The views expressed are those of the authors and not necessarily those of the CBTT, a disclaimer at the top of the study said.


Explaining its role in the paper, the CBTT said: “Understanding the factors that determine on what basis firms change their prices can aid the CBTT in fine tuning its monetary policy as it tries to maintain a stable inflationary environment, as well as policymakers more generally.”


The study drew its sample from the Survey of Business Establishments database for 2011 maintained by the T&T Central Statistical Office (CSO). The CSO provided a sample stratified by industry and size, with size being determined according to the number of employees in each firm.


“According to the survey, quality is the most important factor for competitiveness, followed by price,” the economists wrote.


The authors omitted companies from the financial sector, the energy sector as well as non-profit institutions. Financial sector companies were omitted because of the difficulty of determining a main product in this sector. Companies in the energy sector were also omitted since the prices of energy products are primarily determined on the international market.


There was wide coverage of both manufacturers and services providers. The survey was administered during the period August to December 2011 to 250 businesses in T&T by traditional mail. Staff members followed up with telephone calls and e-mails.


Of the 196 firms contacted, 63 firms responded, resulting in a response rate of 32 per cent. The authors considered this response rate acceptable, given that in the studies in more developed countries the response rates ranged from 36 per cent (Austria) to 69 per cent (Spain).


Small firms (firms with less than 25 employees), accounted for approximately 49 per cent of the responses, large firms (firms with 51 and more employees) represented 38 per cent of the responses, with medium firms making up the remaining 13 per cent. The responding firms could be also grouped into five sectors, food manufacturing, other manufacturing, construction services, distribution services and other services.


Of these, other manufacturing accounted for 33 per cent of the responses, food manufacturing and construction services each accounted for 13 per cent of the responses, while distribution services represented some 22 per cent of the responses, and other services made up the remaining 19 per cent.





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