When the Baby Cries at Night: Uninformed and Hurried Buyers in Non-Competitive Markets

40 Pages Posted: 1 Mar 2012

See all articles by Giacomo Calzolari

Giacomo Calzolari

European University Institute - Economics Department (ECO); Centre for Economic Policy Research (CEPR); University of Bologna

Andrea Ichino

University of Bologna

Francesco Manaresi

Bank of Italy

Viki Nellas

University of Bologna

Multiple version iconThere are 2 versions of this paper

Date Written: February 2012

Abstract

We study the entrance in a retail market of consumers who are less elastic because of hurriedness and lack of information. Theory predicts that firms react by increasing prices to expand surplus extraction, but this effect weakens as market competition increases. High frequency data from Italian pharmacies confirm these predictions. Monthly variation in the number of newborns at the city level generates exogenous changes in the number of less elastic buyers (the parents) who consume a basket of hygiene products demanded by more experienced and elastic consumers as well. We estimate that the number of newborns has a positive effect on the equilibrium price even if marginal costs are decreasing. We exploit exogenous variation in market competition generated by the Italian legislation concerning how many pharmacies should operate in a city as a function of the existing population. Using a Regression Discontinuity design 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.

Keywords: consumer's information, demand elasticity, pharmacies, price competition, regression discontinuity

JEL Classification: D43, D83, L13

Suggested Citation

Calzolari, Giacomo and Ichino, Andrea and Manaresi, Francesco and Nellas, Viki, When the Baby Cries at Night: Uninformed and Hurried Buyers in Non-Competitive Markets (February 2012). CEPR Discussion Paper No. DP8856. Available at SSRN: https://ssrn.com/abstract=2013849

Giacomo Calzolari (Contact Author)

European University Institute - Economics Department (ECO) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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University of Bologna ( email )

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HOME PAGE: http://sites.google.com/view/giacomo-calzolari

Andrea Ichino

University of Bologna ( email )

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40126 Bologna, fc 47100
Italy
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Francesco Manaresi

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Viki Nellas

University of Bologna ( email )

Strada Maggiore 45
Bologna, 40125
Italy

HOME PAGE: http://https://sites.google.com/site/vikinellas/home

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