When the baby cries at night. Inelastic buyers in non-competitive markets �ISER External Seminars

We study an inflow of buyers who are less elastic because of hurriedness and lack of information.
Theory predicts that sellers increase prices to expand surplus appropriation,
even if marginal costs are non-increasing, but this effect weakens as market competition
becomes tougher. Data from Italian pharmacies confirm these predictions. Monthly
variation in the number of newborns at the city level generates exogenous changes in the
number of less elastic buyers (the parents) who consume hygiene products demanded
by more experienced and elastic consumers as well. We estimate that the number of
newborns has a positive effect on equilibrium prices even with non-increasing marginal
costs. We exploit legislation concerning how many pharmacies should operate in a
city as a function of the existing population. Using RDD, we find that an increase in
competition has a significant and negative effect on the capacity of sellers to extract
surplus from less elastic buyers.

Presented by:

Andrea Ichino (University of Bologna)

Date & time:

15 Oct 2012 15:00 pm


External seminars home

News

Latest findings, new research

Publications search

Search all research by subject and author

Podcasts

Researchers discuss their findings and what they mean for society

Projects

Background and context, methods and data, aims and outputs

Events

Conferences, seminars and workshops

Survey methodology

Specialist research, practice and study

Taking the long view

ISER's annual report

Themes

Key research themes and areas of interest