We measure how pass-through varies with competition in isolated oligopolistic markets with captive consumers. Using daily pricing data from gas stations on small Greek islands, we study how unanticipated and exogenous changes in excise duties are passed through to consumers in markets with different numbers of retailers. We find that pass-through increases from 0.4 in monopoly markets to 1 in markets with four or more competitors and remains constant thereafter. The speed of price adjustment is about 60 percent higher in more competitive markets. Finally, we show that geographic market definitions based on measures of distance across sellers often result in significant overestimation of the pass-through.
Christos Genakos
1 October 2022
American Economic Journal: Applied Economics
14(4) , pp.35-37, 2022
DOI: 10.1257/app.20200863
https://benny.aeaweb.org/articles?id=10.1257/app.20200863
This work is published under POID and the CEP's Growth programme.