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Do Collusive Norms Maximize Profits? Evidence from a Vegetable Market Experiment in India

Author

Listed:
  • Abhijit Banerjee
  • Greg Fischer
  • Dean Karlan
  • Matt Lowe
  • Benjamin N. Roth

Abstract

Social norms have been shown to facilitate anti-competitive behavior in decentralized markets. We demonstrate these norms can also reduce aggregate profits. First, we present descriptive evidence of competition-suppressing norms in Kolkata vegetable markets. We then report on a market-level experiment in which we induced a temporary relaxation of these norms by subsidizing some vendors to sell additional produce. Our intervention raised profits at the market level by over 60%, excluding the subsidy. Nevertheless, after the subsidy ended vendors largely stopped selling the additional produce. Our results suggest anti-competitive norms may partially explain the pervasiveness of small-scale firms in developing countries.

Suggested Citation

  • Abhijit Banerjee & Greg Fischer & Dean Karlan & Matt Lowe & Benjamin N. Roth, 2022. "Do Collusive Norms Maximize Profits? Evidence from a Vegetable Market Experiment in India," NBER Working Papers 30360, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30360
    Note: DEV IO LS
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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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