Market Structure and the Distributional Implications of Product Bans
Joint with Fernando Luco (Texas A&M) and Eve Colson-Sihra (Hebrew U)
Presenta: Jorge Ale-Chilet (Universidad de los Andes)
We study the effects that regulatory interventions that impact market structure have on consumers and firms. We do this in the context of the noodles market in India, where the largest manufacturer was first accused of not complying with nutritional standards, and then it was banned from the market (the ban ultimately lasted for six months). We document substantial heterogeneity in consumers’ responses to the ban across income categories, as well as the presence of negative spillovers to competitors. We identify demand and supply responses to the intervention by estimating a structural model of consumer and firm behavior. Through counterfactuals, the model allows us to analyze if firms’ responses were driven by changes in competition (e.g., the remaining firms faced less competition after the intervention), changes in consumer behavior (e.g., consumers abandoning the entire category rather than just the targeted firm), or a combination of the two. Of particular interest is the analysis of whether higher- or lower-income consumers were more likely to respond to the ban by substituting away from the focal product category.
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