Posted by Kathryn Schwartz on August 04, 2014

We also estimate the effects of R&Rs on average price using center level data. As with the market-level specifications, the point estimates suggest that R&Rs reduce average market price, but the estimated effects are not statistically significant at conventional levels.

Our results provide clear support for the contention that information provision can lower price dispersion and maximum price. According to propositions 1 and 2 of Section 3, these results imply that the willingness to search of high valuation consumers is sufficiently higher than the willingness to search of low valuation consumers. Our results are less clear about the effects of search costs on average price. Our model suggests that even if search raises price dispersion and maximum price, it may not raise average price. In order for average price to increase, the willingness to search of higher valuation consumers must be much higher than the willingness to search of lower valuation consumers. (See proposition 3 in Section 3.)

Other Findings

There are a number of other significant findings that are robust across specifications. First, we find that markets in states that allow parents to reduce their tax liability for child-care expenses (TAXDED) have significantly higher price dispersion for infant and toddler care, significantly higher maximum prices for infant, toddler, and school-age care, and significantly higher average prices for toddler, preschooler, and school-age care. These findings suggest that firms capture some of the benefits of the state tax deduction.

We also find that markets with higher fractions of college educated people (COLLEGE) have significantly higher price dispersion for infants and toddlers, but significantly lower price dispersion for preschoolers and school-age children.

There is also some evidence that COLLEGE raises the maximum price for infant care and raises the average price for toddler, preschooler, and school-age care. Interestingly, COLLEGE and median family income (LINCOME) have very different effects on price distributions. Controlling for COLLEGE, we find that LINCOME has virtually no effect on price dispersion or maximum price. If anything, there is some evidence to suggest that median family income has a negative effect on the average price of infant, toddler, and school-age care.

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