Regulation and competition in the distribution sector in Belgium
AbstractWhile being a key sector in all developed economies, retail trade does actually appear to be one of the reasons for Europe’s lagging behind in potential output growth. One of the reasons for this lag could be regulation. By determining conditions for market access and for carrying out a commercial activity, the regulatory framework may exert some influence on both economic performance and market structure and, ultimately, on the degree of competition. The article assesses the retail trade situation in Belgium along these lines. As far as possible, Belgium’s performance is compared with that of neighbouring countries and the findings are assessed by cross-matching the various sources of information available. First, evidence from international indicators (such as those regularly published by the OECD), as well as from a review of the main legislation governing retail trade in Belgium, tend to suggest that regulation in Belgium is relatively abundant and restrictive for this sector. Operating conditions in particular appear to be more regulated than in neighbouring countries. As regards the retail trade sector’s economic performance, it should be noted that, like most other economic sectors, the retailing business in Belgium still has a higher productivity rate than in the majority of other European countries and even the United States too. However, unlike trends noted in other branches of activity, this favourable position has been gradually eroded over the last ten years. It does actually seem that Belgium’s main problem lies in its inability to improve the efficiency of the production factors being used. However, looking more closely at the food retailing sub-sector, no striking anomalies are noted in the market structure and the degree of competition in Belgium. Even though the overall indicators point to some concentration at national level, local competition – assessed with an original approach applied to detailed data – appears to be quite strong; only a few sales outlets have a dominant position. Moreover, the non-specialised food retail sector has a growing number of big shops, as well as an increasing number of hard discounters and a larger share of generic brand products in traditional retail outlets. Using detailed consumption price data from CityData and Eurostat, this analysis throws up evidence that prices charged by the retail sector are higher in Belgium than in the three neighbouring countries and the euro area as a whole. There have also been signs of a recent deterioration in the differential between prices in Belgian supermarkets and prices charged by German and Dutch supermarkets in particular. Adverse developments in labour costs in Belgium and higher retail business margins can go some way to explaining the trend in price differentials compared to Germany, where hard discounters are more common. Then again, the sharp deterioration in the price differentials between Belgium and the Netherlands recorded in supermarkets can largely be explained by the price war that raged between the major Dutch retail groups from October 2003 to December 2006. Overall, it therefore appears that the actual influence of specific regulatory requirements for the retail trade on the efficiency of the sector, on the degree of competition and, ultimately, on consumer prices needs to be looked at very carefully. On the one hand, simplifying regulations in force in Belgium would no doubt break down the barriers to entry without necessarily impeding other policy objectives. On the other hand, the performance of the retail distribution sector must be examined taking account of the specific features of the economy, such as population density and cultural preferences.
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Bibliographic InfoArticle provided by National Bank of Belgium in its journal Economic Review.
Volume (Year): (2009)
Issue (Month): III (September)
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retail; regulation; market structure; pricing; productivity;
Find related papers by JEL classification:
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
- K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
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