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Competition and pass-through: evidence from isolated markets

Genakos, Christos and Pagliero, Mario (2019) Competition and pass-through: evidence from isolated markets. CEP Discussion Papers. Centre for Economic Performance, LSE, London, UK.

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Abstract

We measure how pass-through varies with competition in isolated oligopolistic markets with captive consumers. Using daily pricing data from gas stations, we study how unanticipated and exogenous changes in excise duties (which vary across different petroleum products) are passed through to consumers in markets with different numbers of retailers. We find that pass-through increases from 0.44 in monopoly markets to 1 in markets with four or more competitors and remains constant thereafter. Moreover, the speed of price adjustment is about 60% higher in more competitive markets. Finally, we show that geographic market definitions based on arbitrary measures of distance across sellers, often used by researchers and policy makers, result in significant overestimation of the pass-through when the number of competitors is small.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/_new/publications/series.asp?...
Additional Information: © 2019 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HF Commerce
JEL classification: H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H22 - Incidence
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General
Date Deposited: 17 Feb 2020 11:12
Last Modified: 12 Sep 2020 23:14
URI: http://eprints.lse.ac.uk/id/eprint/103397

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