NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Matias Busso, Sebastian Galiani

NBER Working Paper No. 20054
Issued in April 2014, Revised in March 2018
NBER Program(s):Development Economics

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.

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Document Object Identifier (DOI): 10.3386/w20054

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