THAT COMPETITION keeps prices down is well known. But it is hard to measure by just how much, because prices vary for all sorts of reasons, from differences in labour costs and rents to taxes. Rising to the challenge is a new paper in The Economic Journal by Giacomo Calzolari, Andrea Ichino, Francesco Manaresi and Viki Nellas, economists at the European University Institute, Bologna University and the Italian central bank. They looked at pharmacies and specifically at customers who may be particularly easy to rip off: new parents.
Using data for 2007 to 2010 covering about a fifth of pharmacies in Italy, the researchers measured the way in which prices of hygiene products for babies changed as the number of babies varied. They took advantage of a peculiar law from the 1960s, according to which municipalities with at most 7,500 people are allowed…
