Competition and collusion in open-air markets
Bergquist’s research has distinguished her in the field of agricultural market economics due to her ability to combine experimental methods and economic theory. Beyond the scope of her published papers, Bergquist and her team have also conducted extensive focus groups and conversations on the ground in Kenya and established relationships in the village before introducing their experiment.
“I think no matter what type of work you're doing, that foundation of talking to people and hearing from their perspective what the issues are is incredibly important,” Bergquist said. “I think most good economists will spend a good amount of time doing that before they launch into quantitative work." Bergquist and her team relied heavily on translators, local partner organizations, and the trust of community members that participating in this research could return positive effects in the future.
“Lauren is a scholar who really brings a lot of tools to the table,” said Edward Miguel, Professor of Economics at UC Berkeley and Director of CEGA. “She’s able to draw on all these different tools – from theoretical models of how markets work to randomized controlled trials and original field work. It’s a really exciting research agenda.”
Upon initial surveys of the community, Bergquist and her colleagues discovered a common theory that one persistent barrier to agricultural market liberalization was the structure of competition amongst intermediaries. Local newspapers also called out “greedy middlemen, “rogue traders,” and “cartels.” Initially, Bergquist was wary of this theory – but to get to the bottom of it, she set out to better understand the nature of competition happening between intermediaries and the resulting effects on consumers.
During initial surveys, some intermediaries openly admitted to colluding with each other, and Bergquist and her team moved to investigate how and why such collusion was occurring. Through a series of experiments, including one where traders were offered monetary incentives to enter randomly selected markets, the team found that entry held high fixed costs for potential new entrants, such as buying a vehicle and other supplies.
Social barriers played a role, as well as monetary necessities. The market was friendlier to those in the know – sellers who were already acquainted with local players and were less likely to disrupt collusive practices. Outsiders less likely to enter the market were also less likely to collude. When entrants were given the resources to enter markets with no prior connections to other traders, competition increased, and the detrimental effects of collusion decreased substantially. A solution to this problem would therefore need to involve both economic and social factors.
Bergquist’s team and policymakers reached similar conclusions about the negative impacts of collusion, but the recommendations they made contrasted sharply. While the media and some government figures called for a ban on intermediaries, Bergquist and her team concluded that a more productive change may be just the opposite — lowering the barriers to entry to the market and encouraging entrance of social outsiders in order to increase competition.
In addition to communication with local policymakers and non-profits, Bergquist is also continuing this line of research in another region of East Africa. Her team worked with the developers of a new technological platform to connect buyers and sellers in Uganda who don’t know each other. Initial results suggest that traders use the platform to expand to new markets, even where they don’t have previous contacts, leading to increased competition amongst intermediaries and price convergence across markets.
As Bergquist joins the Yale Economics community she is preparing to teach a master’s class at the Jackson School of Global Affairs and helping to co-run an economic development seminar. “Thanks to generous funding from the Kuznets program, I’ve also been able to invite development economists from other universities to come for short-term visits throughout the year,” she said. “I hope they will contribute to the rich intellectual environment for students and other faculty.”