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.
Busso, Matias, and Sebastian Galiani.
"The Causal Effect of Competition on Prices and Quality: Evidence from a Field Experiment."
American Economic Journal: Applied Economics,
Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
Production, Pricing, and Market Structure; Size Distribution of Firms
Information and Product Quality; Standardization and Compatibility
Retail and Wholesale Trade; e-Commerce
Industrialization; Manufacturing and Service Industries; Choice of Technology