The Causal Effect of Competition on Prices and Quality: Evidence from a Field Experiment

49 Pages Posted: 6 Apr 2014 Last revised: 3 Oct 2018

See all articles by Matias Busso

Matias Busso

Inter-American Development Bank (IDB)

Sebastian Galiani

University of Maryland - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2017

Abstract

The potential benefits of demand side interventions may leak into the profits of suppliers whenever there is market power. In those situations, governments could attempt to regulate the market or to increase competition. We provide the first experimental evidence on the effect of increased competition on prices and quality relying on an intervention that randomized the entry of retail firms into 72 local markets in the context of a conditional cash transfer program. Six months after the intervention, product prices decreased by about 5 percent while service quality perceived by consumers improved.

Keywords: Competition, prices, quality, experimental evidence, design of social policies

JEL Classification: D4, L1, I3

Suggested Citation

Busso, Matias and Galiani, Sebastian, The Causal Effect of Competition on Prices and Quality: Evidence from a Field Experiment (October 1, 2017). Available at SSRN: https://ssrn.com/abstract=2420627 or http://dx.doi.org/10.2139/ssrn.2420627

Matias Busso

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Sebastian Galiani (Contact Author)

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

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