Do search frictions in retail cause upstream misallocation? Evidence from Zambia
Persistent productivity gaps between developing and advanced economies are often attributed to supply-side distortions, while demand-side frictions in retail have received less attention despite the sector's economic importance. Using a novel linked supplier-retailer dataset and a randomised controlled trial in Lusaka, Zambia, this study examines whether search frictions distort retailer sourcing decisions and resource allocation. The results show that retailers pay widely different prices for identical goods and that providing information on alternative supplier prices increased the likelihood of switching suppliers by up to 8.7 percentage points, particularly among retailers facing lower search costs. The findings suggest that reducing search frictions can improve resource allocation by directing demand towards more productive suppliers and lowering prices for consumers.
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Gupta-SamaniegodelaParra-Shenoy-Policy-Brief-April-2026.pdf
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Retailers in Lusaka, Zambia, pay widely different prices for identical goods, even within the same market. These differences persist over time, suggesting that search frictions prevent shops from finding cheaper suppliers.
A randomised experiment providing price information increased the probability of sourcing from a new supplier by up to 8.7 percentage points.
The effects of information provision are concentrated among shops that already source at relatively lower prices and face lower search costs.
When retailers face high search costs for suppliers, their sourcing decisions can channel demand toward less productive, higher-cost producers. Reducing these frictions through targeted information interventions can improve resource allocation and benefit consumers through lower prices.