Working Paper: CEPR ID: DP13882
Authors: 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.
Keywords: Passthrough; Tax incidence; Gasoline market; Structure; Competition
JEL Codes: H22; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of competitors (L13) | passthrough (Y60) |
| competition (L13) | speed of price adjustment (D41) |
| geographic market definitions (R12) | passthrough (Y60) |