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How Consumer Information Curtails Market Power in the Funeral Industry

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  • Thierry BLAYAC
  • Patrice BOUGETTE
  • Christian MONTET

Abstract

The purpose of this article is to show, based on the case of the French market, that consumer perception of different funeral service offers, along with new entry in a special storing facility service (“chambre funéraire”), can be sufficient to impose competitive pressures on the various suppliers, including the former monopolist. With a discrete choice experiment implemented in Lyon, France, we find evidence that, contrary to widely shared beliefs about this specific market, demand for funeral services seems characterized by relatively high price elasticities, at least as soon as consumers are fully informed about the opportunities open to them in this market. Consumer behavior has actually changed in favor of a better assessment of the different possibilities of services supplied and of their relative price. We then implement simulations in local markets and show that, with good consumer information, the market power of the supposedly dominant firm is much less important than it is generally believed. Furthermore, simulations stress the procompetitive effects of setting up a new storing facility by any businesses. We finally show that, if some improvements can still be brought to the functioning of this market, they should come from a better regulation of consumer information and of the entry of firms.

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File URL: http://www.lameta.univ-montp1.fr/Documents/DR2012-12.pdf
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Paper provided by LAMETA, Universtiy of Montpellier in its series Working Papers with number 12-12.

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Length: 30 pages
Date of creation: Apr 2012
Date of revision: Apr 2012
Handle: RePEc:lam:wpaper:12-12

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  1. Andrei Shleifer, 2005. "Understanding Regulation," European Financial Management, European Financial Management Association, vol. 11(4), pages 439-451.
  2. David E. Harrington, 2007. "Markets: Preserving Funeral Markets with Ready-to-Embalm Laws," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 201-216, Fall.
  3. Lori Parcel, 2008. "Stiff Competition: Vertical Relationships in Cremation Services," Discussion Papers 07-041, Stanford Institute for Economic Policy Research.
  4. Harrington, David E & Krynski, Kathy J, 2002. "The Effect of State Funeral Regulations on Cremations Rates: Testing for Demand Inducement in Funeral Markets," Journal of Law and Economics, University of Chicago Press, vol. 45(1), pages 199-225, April.
  5. Paul W. Dobson & Michael Waterson, 2005. "Chain-Store Pricing Across Local Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 14(1), pages 93-119, 03.
  6. Brownstone, David & Train, Kenneth, 1999. "Forecasting new product penetration with flexible substitution patterns," University of California Transportation Center, Working Papers qt1j6814b3, University of California Transportation Center.
  7. Javier Elizalde, 2012. "A theoretical approach to market definition analysis," European Journal of Law and Economics, Springer, vol. 34(3), pages 449-475, December.
  8. Judith A. Chevalier & Fiona M. Scott Morton, 2008. "State Casket Sales Restrictions: A Pointless Undertaking?," Journal of Law and Economics, University of Chicago Press, vol. 51(1), pages 1-23, 02.
  9. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, April.
  10. Hoyos, David, 2010. "The state of the art of environmental valuation with discrete choice experiments," Ecological Economics, Elsevier, vol. 69(8), pages 1595-1603, June.
  11. Louviere, Jordan J & Hensher, David A, 1983. " Using Discrete Choice Models with Experimental Design Data to Forecast Consumer Demand for a Unique Cultural Event," Journal of Consumer Research, University of Chicago Press, vol. 10(3), pages 348-61, December.
  12. Ekelund, Robert B, Jr & Ford, George S, 1997. "Nineteenth Century Urban Market Failure?: Chadwick on Funeral Industry Regulation," Journal of Regulatory Economics, Springer, vol. 12(1), pages 27-51, July.
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