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

32 Pages Posted: 22 Aug 2022 Last revised: 27 Aug 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

Massachusetts Institute of Technology (MIT)

Benjamin Roth

Harvard University - Business School (HBS)

Multiple version iconThere are 2 versions of this paper

Date Written: August 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.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

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 (August 2022). NBER Working Paper No. w30360, Available at SSRN: https://ssrn.com/abstract=4196305

Abhijit V. Banerjee (Contact Author)

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

50 Memorial Drive
Room E52-252D
Cambridge, MA 02142
United States
617-253-8855 (Phone)
617-253-6915 (Fax)

Greg Fischer

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

Houghton Street
London WC2A 2AE
United Kingdom

Dean Karlan

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Matt Lowe

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Benjamin Roth

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
5
Abstract Views
49
PlumX Metrics