Barbers and imperfect competition in Senegal

The Economist had a short article on their correspondent getting a haircut in Dakar Senegal. Prices for a haircut in the low income countries should be a lot cheaper when compared to the developed world as a lot depends on operating costs, rents and wages – the saying goes that ‘when in poor countries get a haircut’. In India a haircut and head massage costs around 50 rupees which is less than 1 US$. In New York you could pay up to US$195. The Balassa-Samuelson effect explains differences in prices and incomes across countries as a result of differences in productivity. When you consider Dakar, the expectation is that in this developing country barbers should be cheap. Even though there are numerous cheap hair salons there are those that are very expensive with prices more reminiscent of New York or Paris. The clientele are affluent Senegalese and expats. Might jet-setting customers have their expectations anchored to prices in Paris or London, making haircuts, in effect, seem more traceable than they are?

Barbers are not perfectly competitive. A variety of prices (high and low) of barbers in the developing world are most likely due to the reputation/expertise of the service provided. Since their prices differ widely within the same city it is an imperfect market. For market to be perfect products/services need to be identical – homogeneous. Yet the market for mohawks in Dakar casts doubt on this idea. Some barbers pull in customers by blasting Afrobeats whilst others have more comfortable chairs or screen the latest premier league football game. Perfect competition also requires clients to have perfect information about the options on offer. Yet many of the Senegal’s best barbers do not show up on the internet; most do business by word of mouth. The traffic congestion may keep extortionate stylists in business in swanky suburbs, while high rents and red tape may keep competitors out. The message is that you should get your hair cut not just in poor countries but once there in poorer areas of town. Below is a very good video from Marginal Revolution University where Alex Tabborak gets a haircut in India. Also a mindmap showing the main characteristics of perfect competition – good revision for the upcoming Cambridge and NCEA exams in New Zealand.

Source: The Economist: Cutting costs – June 18th 2022

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