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Competition and Pass-Through: Evidence from Isolated Markets

Christos Genakos and Mario Pagliero

CEP Discussion Papers from Centre for Economic Performance, LSE

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.

Keywords: pass-through; tax incidence; gasoline; market structure; competition (search for similar items in EconPapers)
JEL-codes: H22 L1 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-ind and nep-reg
Date: 2019-07
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