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

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 additio...

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Bibliographic Details
Published in:NBER Working Paper Series 2022-08
Main Authors: Banerjee, Abhijit, Fischer, Greg, Karlan, Dean, Lowe, Matt, Roth, Benjamin N
Format: Article
Language:English
Subjects:
Carrots
Competition
Developing countries
Economic theory
Efficient markets
Experiments
Fruits
LDCs
Market exit
Prices
Product differentiation
Profits
Subsidies
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Summary: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.
ISSN:0898-2937
DOI:10.3386/w30360