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 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. The speed of price adjustment is about 60 percent higher in more competitive markets. Finally, we show that geographic market definitions based on measures of distance across sellers often result in significant overestimation of the pass-through.
Genakos, Christos, and Mario Pagliero.
"Competition and Pass-Through: Evidence from Isolated Markets."
American Economic Journal: Applied Economics,
Taxation and Subsidies: Incidence
Business Taxes and Subsidies including sales and value-added (VAT)
Oligopoly and Other Imperfect Markets
Retail and Wholesale Trade; e-Commerce