Skip to main content

Does the Invisible Hand Efficiently Guide Entry and Exit? Evidence from a Vegetable Market Experiment in India (WP-22-35)

Abhijit Banerjee, Greg Fischer, Dean Karlan, Matt Lowe, and Benjamin Roth

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? The researchers ran an experiment in Kolkata vegetable markets in which they 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. The researchers' results are consistent with collusion and inertial business practices suppressing competition and efficient market exit.

Abhijit Banerjee, Ford Foundation International Professor of Economics, Massachusetts Institute of Technology

Greg Fischer, Professor of Practice, School of Public Policy, London School of Economics

Dean Karlan, Frederic Esser Nemmers Chair, Professor of Economics and Finance, and IPR Associate, Northwestern University

Matt Lowe, Assistant Professor of Economics, University of British Columbia

Benjamin Roth, Assistant Professor of Business Administration, Harvard University

Download PDF