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When the baby cries at night. Uninformed and hurried buyers in non-competitive markets

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Abstract: 

We study the entrance in a retail market of consumers who are less elastic because of hurriedness and lack of information. Theory predicts that firms react by increasing prices to expand surplus extraction, but this effect weakens as market competition increases. High frequency 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 a basket of hygiene products demanded by more experienced and elastic consumers as well. We estimate that the number of newborns has a positive effect on the equilibrium price even if marginal costs are decreasing. We exploit exogenous variation in market competition generated by the Italian legislation concerning how many pharmacies should operate in a city as a function of the existing population. Using a Regression Discontinuity design 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.

The authors of the paper are Giacomo Calzolari, Andrea Ichino, Francesco Manaresi and Viki Nellas.

Speaker: 
Andrea Ichino
Short bio: 

Andrea Ichino has graduated at Bocconi University in 1985 under the supervision of Professor Mario Monti with a thesis on the effects of wage subsidies on unemployment. He has obtained his PhD in Economics at MIT, Cambridge (USA). From 1990 until 1997 he has been teaching and doing research at IGIER, Bocconi University, after which he moves to Florence and works for the EUI until 2006. Actually he is a Professor of Economics at University of Bologna.
His research interests include Economics of gender, Group interactions and network effects, Economics of education, Intergenerational social mobility and income inequality, Rigidity and flexibility in European labor markets, Labor-Law and Economics, Family structure and unemployment in southern Europe and Personnel Economics.

Date: 
01 March 2012 - 17:00
Location: 

IRVAPP/Fondazione Bruno Kessler - Via Santa Croce 77 - Trento

Programme: 

The presentation will be in English.