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When the Baby Cries at Night: Inelastic Buyers in Non-Competitive Markets

Author

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  • Calzolari, Giacomo

    () (University of Bologna)

  • Ichino, Andrea

    () (European University Institute)

  • Manaresi, Francesco

    () (Bank of Italy)

  • Nellas, Viki

    () (University of Bologna)

Abstract

We investigate empirically how sellers react to changes in the population of their consumers, identifying the effects of demand composition and demand size with limited information on costs. We show how pharmacists in Italy selectively increase the price of some products when they observe in their cities an exogenous influx of parents of newborns, conceivably less elastic buyers as compared with other more experienced and less pressed consumers. Exploiting population based laws that fix the number of pharmacies in a city, we use RDD to measure the effect of competition on sellers' ability to extract surplus from less elastic buyers.

Suggested Citation

  • Calzolari, Giacomo & Ichino, Andrea & Manaresi, Francesco & Nellas, Viki, 2014. "When the Baby Cries at Night: Inelastic Buyers in Non-Competitive Markets," IZA Discussion Papers 8490, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp8490
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    References listed on IDEAS

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    1. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-659, September.
    2. Mark Aguiar & Erik Hurst, 2007. "Life-Cycle Prices and Production," American Economic Review, American Economic Association, vol. 97(5), pages 1533-1559, December.
    3. Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June.
    4. Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
    5. Veronica Grembi & Tommaso Nannicini & Ugo Troiano, 2012. "Policy Responses to Fiscal Restraints: A Difference-in-Discontinuities Design," CESifo Working Paper Series 3999, CESifo Group Munich.
    6. Saul Lach, 2007. "Immigration and Prices," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 548-587, August.
    7. Kathryn Graddy, 1995. "Testing for Imperfect Competition at the Fulton Fish Market," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 75-92, Spring.
    8. Veronica Grembi & Tommaso Nannicini & Ugo Troiano, 2011. "Policy Responses to Fiscal Restraints: A Difference-in-Discontinuities Design," Working Papers 397, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    9. Maarten C. W. Janssen & José Luis Moraga-González, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 1089-1118.
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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.

    More about this item

    Keywords

    demand elasticity; consumer's information; price competition; pharmacies; regression discontinuity;

    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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