Abstract
Do decentralized markets efficiently aggregate supply decisions when firms must commit inventory under correlated uncertainty? We study street vendors selling perishable produce in Patna, India, who first commit to inventory at wholesale markets then set retail prices during the trading day. Demand uncertainty is driven by weather and marketplace-day footfall affecting all vendors simultaneously. Waste from spoilage provides a direct measure of costly supply mistakes. We develop a two-stage model identifying three inefficiency channels: business-stealing through prices, availability externalities through stockout spillovers, and coordination failure under correlated shocks. Our empirical strategy combines vendor-level panel data with randomized price experiments. Vendors are notified of treatment the evening before, so the experiment activates both the inventory response at the wholesale market and the price and sales response during the trading day. Conditional price subsidies for randomly selected vendors thereby identify demand substitution, strategic conduct, and uncertainty decomposition across both stages. We test whether vendors optimize individually and whether markets achieve efficient aggregation, classifying behaviour into scenarios based on individual versus market efficiency. The analysis will establish whether inefficiency arises from individual mistakes (learning errors, biases) or market failures (strategic competition, coordination)---a distinction critical for policy, since if markets exhibit individual efficiency with market inefficiency, improving individual forecasting cannot address strategic externalities.