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

51 Pages Posted: 21 Apr 2014

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: April 2014

Abstract

This paper provides experimental evidence on the effect of increased competition on prices and quality in the retail sector. We randomized the entry of 61 firms into 72 markets serving the beneficiaries of a conditional cash transfer program in the Dominican Republic. Six months after the intervention entry into the market led to reductions in prices ranging from 2 to 6 percent and to a statistically significant improvement in self-reported service quality. Prices dropped more in areas where the number of entrants was larger. Competition seems to have driven part of the clientele away from incumbent retailers.

Suggested Citation

Busso, Matias and Galiani, Sebastian, The Causal Effect of Competition on Prices and Quality: Evidence from a Field Experiment (April 2014). NBER Working Paper No. w20054. Available at SSRN: https://ssrn.com/abstract=2427156

Matias Busso (Contact Author)

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Sebastian Galiani

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States

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