I have to disagree here. While retail prices are indeed set by retail stores, the recommended retail pricing (RRP) is not (as far as I am aware).
I worked for about 6 years at an independent toy retailer here in Australia, which also rekindled my love for the brick and took me out of a long dark period. But that's beside the point. I can tell you that LEGO gives retailers a set of RRP price lists, which I assume are set by the company themselves. This must be based on the cost pricing of the sets; and there is a very slim margin between cost price and RRP for LEGO (for independent retailers anyway). Of course, the majors such as Big W, Toys R Us etc bulk buy across all their stores and are able to be offered a cheaper cost price for LEGO, and this is why they are able to have 20% sales quite frequently. There is not a huge profit margin for LEGO, and I know the retailer I worked for set selling prices at the RRP suggested by LEGO.
So while retailers ultimately set the price at which you buy a set in a store, essentially it really is more of a case of LEGO setting pricing.
