The Causal Effect of Competition on Prices and Quality: Evidence from a Field Experiment
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.
The authors declare to have no relevant interests related to the research describe in this paper. This research was made possible by the collaboration of the Administradora de Subsidios Sociales of the Dominican Republic and the Inter-American Development Bank. The collaboration placed no constraints on the conclusions of the analysis. The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, any of the countries they represent, or the National Bureau of Economic Research. This experiment has been registered with the American Economic Association RCT Registry under number AEARCTR-0000343. We thank Francisca Müller, Juan Sebastian Muñoz, Dario Romero and Dario Salcedo for their excellent project management and research assistance. We are grateful for the very useful comments made by Daron Acemoglu, Alberto Chong, Matthew Gentzkow, Gary Libecap, David McKenzie, James Poterba, Ernesto Schargrodsky, Gustavo Torrens, participants at various seminars, and three anonymous referees. We also thank the valuable collaboration and feedback provided during the early stages of the project by Van Elder Espinal, Mayra Guzman, Carlos Leal and Mario Alberto Sanchez. All errors are our own.
Matias Busso & Sebastian Galiani, 2019. "The Causal Effect of Competition on Prices and Quality: Evidence from a Field Experiment," American Economic Journal: Applied Economics, vol 11(1), pages 33-56. citation courtesy of