Research Insights: How Does Increased Competition Impact Prices and Quality in The Retail Sector?

A conditional cash transfer program in the Dominican Republic offered an opportunity to randomize the entry of 61 firms into 72 markets and study the effects of increased competition on prices and service quality for the beneficiaries of the program. Six months after the intervention, entry into the market led to reductions in prices and an improvement of self-reported service quality among consumers. 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.