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Competition and pass-through: evidence from isolated markets

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  • Christos Genakos
  • Mario Pagliero

Abstract

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 (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 0.4 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 competition authorities, result in significant overestimation of the pass-through when the number of competitors is small.

Suggested Citation

  • Christos Genakos & Mario Pagliero, 2019. "Competition and pass-through: evidence from isolated markets," CEP Discussion Papers dp1638, Centre for Economic Performance, LSE.
  • Handle: RePEc:cep:cepdps:dp1638
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    Cited by:

    1. Clemens Fuest & Florian Neumeier & Daniel Stöhlker, 2020. "The Pass-Through of Temporary VAT Rate Cuts in German Supermarket Retail," ifo Working Paper Series 341, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Orley C. Ashenfelter & Štěpán Jurajda, 2021. "Wages, Minimum Wages, and Price Pass-Through: The Case of McDonald’s Restaurants," NBER Working Papers 28506, National Bureau of Economic Research, Inc.
    3. Neuhoff, K. & Ritz, R., 2019. "Carbon cost pass-through in industrial sectors," Cambridge Working Papers in Economics 1988, Faculty of Economics, University of Cambridge.
    4. Valadkhani, Abbas & Anwar, Sajid & Ghazanfari, Arezoo & Nguyen, Jeremy, 2021. "Are petrol retailers less responsive to changes in wholesale or crude oil prices when they face lower competition? The case of Greater Sydney," Energy Policy, Elsevier, vol. 153(C).
    5. Felix Montag & Alina Sagimuldina & Monika Schnitzer, 2021. "Does Tax Policy Work When Consumers Have Imperfect Price Information? Theory and Evidence," CESifo Working Paper Series 9138, CESifo.

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    More about this item

    Keywords

    pass-through; tax incidence; gasoline; market structure; competition; Greek islands;
    All these keywords.

    JEL classification:

    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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