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Inelastic Buyers and Competition

Author

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  • Giacomo Calzolari
  • Andrea Ichino
  • Francesco Manaresi
  • Viki Nellas

Abstract

We measure precisely how competition limits the capacity of sellers to appropriate surplus from less elastic consumers. The evidence originates from pricing strategies of Italian pharmacists in response to exogenous inflows of parents of newborn babies among their buyers. Population‐based laws allow us to use a regression discontinuity design to compare different competitive environments. While more newborn babies have no effect on the price of hygiene products under intense competition, we observe a price increase when competition is low. This effect is not driven by increasing costs because for nappies, demanded by newborns only, we see no effect independently of competition.

Suggested Citation

  • Giacomo Calzolari & Andrea Ichino & Francesco Manaresi & Viki Nellas, 2018. "Inelastic Buyers and Competition," Economic Journal, Royal Economic Society, vol. 128(615), pages 2843-2875, November.
    • Handle: RePEc:wly:econjl:v:128:y:2018:i:615:p:2843-2875
    DOI: 10.1111/ecoj.12558
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    Cited by:

    1. Mario Pagliero, 2019. "Occupational Licensing in the EU: Protecting Consumers or Limiting Competition?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(1), pages 137-153, August.
    2. Andrea Cintolesi & Andrea Riganti, 2022. "Liberalizing the opening of new pharmacies and hospitalizations," Temi di discussione (Economic working papers) 1388, Bank of Italy, Economic Research and International Relations Area.

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