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
Date Written: October 1, 2017
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: Suggested Citation