Does the Invisible Hand Efficiently Guide Entry and Exit? Evidence from a Vegetable Market Experiment in India

33 Pages Posted: 21 Jul 2022

See all articles by Abhijit V. Banerjee

Abhijit V. Banerjee

Massachusetts Institute of Technology (MIT) - Department of Economics

Greg Fischer

London School of Economics & Political Science (LSE) - Department of Economics

Dean Karlan

Northwestern University

Matt Lowe

University of British Columbia (UBC) - Vancouver School of Economics

Benjamin Roth

Harvard University - Business School (HBS)

Multiple version iconThere are 2 versions of this paper

Date Written: July 14, 2022

Abstract

What accounts for the ubiquity of small vendors operating side-by-side in the urban centers of developing countries? Why don’t competitive forces drive some vendors out of the market? We ran an experiment in Kolkata vegetable markets in which we induced (via subsidizing) some vendors to sell additional produce. The vendors earned higher profits, even when excluding the value of the subsidy. Nevertheless, after the subsidies ended vendors largely stopped selling the additional produce. Our results are consistent with collusion and inertial business practices suppressing competition and efficient market exit.

Suggested Citation

Banerjee, Abhijit V. and Fischer, Greg and Karlan, Dean and Lowe, Matt and Roth, Benjamin, Does the Invisible Hand Efficiently Guide Entry and Exit? Evidence from a Vegetable Market Experiment in India (July 14, 2022). Harvard Business School Entrepreneurial Management Working Paper No. 23-006, Harvard Business Working Paper No. 23-006, Available at SSRN: https://ssrn.com/abstract=4168261. or http://dx.doi.org/10.2139/ssrn.4168261

Abhijit V. Banerjee

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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Greg Fischer

London School of Economics & Political Science (LSE) - Department of Economics ( email )

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Dean Karlan

Northwestern University ( email )

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Matt Lowe

University of British Columbia (UBC) - Vancouver School of Economics ( email )

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Benjamin Roth (Contact Author)

Harvard University - Business School (HBS) ( email )

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