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When the baby cries at night. Inelastic buyers in non-competitive markets

Author

Listed:
  • Giacomo Calzolari

    (Universit� di Bologna)

  • Andrea Ichino

    (Universit� di Bologna)

  • Francesco Manaresi

    (Banca d'Italia)

  • Viki Nellas

    (Universit� di Bologna)

Abstract

We study an inflow of buyers who are less elastic because they lack both time and 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 intensifies. Data from Italian pharmacies confirm these predictions. Monthly fluctuations in the number of newborns at the city level generate 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 that fixes the number of pharmacies that should serve a city as a function of the existing population. Using RDD meglio scriverlo per esteso, 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.

Suggested Citation

  • Giacomo Calzolari & Andrea Ichino & Francesco Manaresi & Viki Nellas, 2013. "When the baby cries at night. Inelastic buyers in non-competitive markets," Temi di discussione (Economic working papers) 914, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_914_13
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    References listed on IDEAS

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    Cited by:

    1. Sauro Mocetti, 2014. "Dynasties in professions: the role of rents," Temi di discussione (Economic working papers) 995, Bank of Italy, Economic Research and International Relations Area.
    2. Mocetti, Sauro, 2016. "Dynasties in professions and the role of rents and regulation: Evidence from Italian pharmacies," Journal of Public Economics, Elsevier, vol. 133(C), pages 1-10.

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    More about this item

    Keywords

    demand elasticity; consumer�s information; price competition; pharmacies; regression discontinuity;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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