Working Paper: CEPR ID: DP17488
Authors: Abhijit Banerjee; Greg Fischer; Dean Karlan; Matt Lowe; Benjamin Roth
Abstract: What accounts for the ubiquity of small vendors operating side-by-side in the urban centersof 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.
Keywords: No keywords provided
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Limited awareness of profitable opportunities (D89) | Behavioral inertia (D91) |
| Implicit collusion among vendors (D43) | Inhibited competition and market exit (L13) |
| Subsidy intervention (H20) | Increased inventory and sales of peas and carrots (Q11) |
| Removal of subsidy (H23) | Decrease in product offerings (L15) |