May 24, 2019, 15:30–17:30
Room MF 323
Economic Seminar Series on Competition Policy
We measure how pass-through varies with competition in isolated oligopolistic markets. Using daily pricing data from gas stations, we study how unexpected and exogenous changes in excise duties (different across different petroleum products) is passed-through to retail prices on islands with different number of sellers. We find that pass-through increases from about 0.5 in monopoly markets to about 1 in markets with four or more competitors and remains constant thereafter. Moreover, the speed of price adjustment is about 60 percent higher in more competitive markets. Finally, we show that geographic market definitions based on distance across sellers – and often used by competition authorities – result in significantly overestimating the pass-through when there is a small number of competitors.