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

57 Pages Posted: 21 Jun 2013

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

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Date Written: June 20, 2013

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.

Keywords: demand elasticity, consumer’s information, price competition, pharmacies, 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: Inelastic Buyers in Non-Competitive Markets (June 20, 2013). Bank of Italy Temi di Discussione (Working Paper) No. 914. Available at SSRN: https://ssrn.com/abstract=2281909 or http://dx.doi.org/10.2139/ssrn.2281909

Giacomo Calzolari

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 )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy
+39 349 5965919 (Phone)

Francesco Manaresi (Contact Author)

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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