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Entry Regulations, Product Differentiation and Determinants of Market Structure

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  • Maican, Florin

    ()
    (Research Institute of Industrial Economics (IFN))

  • Orth, ´Matilda

    ()
    (Research Institute of Industrial Economics (IFN))

Abstract

We use a dynamic oligopoly model of entry and exit to evaluate how entry regulations affect profitability and market structure in retail. The model incorporates demand and store-level heterogeneity. Based on unique data for all retail food stores in Sweden, we find that the average entry costs for small and large stores are 10 and 18 percent lower, respectively, in markets with liberal compared with restrictive regulations. Counterfactual simulations show that lower entry costs in restrictive markets result in higher entry rates and allow us to quantify the consequences of regulations in light of trade-offs between small and large stores.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 984.

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Length: 55 pages
Date of creation: 11 Oct 2013
Date of revision:
Handle: RePEc:hhs:iuiwop:0984

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Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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Web page: http://www.ifn.se/
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Keywords: Imperfect competition; Product differentiation; Retail markets; Entry; Exit; Sunk costs;

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  1. Bajari, Patrick & Benkard, C. Lanier & Levin, Jonathan, 2007. "Estimating Dynamic Models of Imperfect Competition," Research Papers 1852r1, Stanford University, Graduate School of Business.
  2. Katja Seim, 2006. "An empirical model of firm entry with endogenous product‐type choices," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 619-640, 09.
  3. Emek Basker & Shawn Klimek & Pham Hoang Van, 2008. "Supersize It - The Growth of Retail Chains and the Rise of the "Big Box" Retail Format," Working Papers 0809, Department of Economics, University of Missouri, revised 30 Sep 2010.
  4. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
  5. Paul B. Ellickson & Stephanie Houghton & Christopher Timmins, 2010. "Estimating Network Economies in Retail Chains: A Revealed Preference Approach," NBER Working Papers 15832, National Bureau of Economic Research, Inc.
  6. Bertrand, Marianne & Kramarz, Francis, 2002. "Does Entry Regulation Hinder Job Creation? Evidence from the French Retail Industry," IZA Discussion Papers 415, Institute for the Study of Labor (IZA).
  7. Junichi Suzuki, 2010. "Land Use Regulation as a Barrier to Entry: Evidence from the Texas Lodging Industry," Working Papers tecipa-412, University of Toronto, Department of Economics.
  8. Stephen Ryan, 2005. "The Costs of Environmental Regulation in a Concentrated Industry," Working Papers 0510, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  9. Emek Basker & Michael Noel, 2009. "The Evolving Food Chain: Competitive Effects of Wal-Mart's Entry into the Supermarket Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 977-1009, December.
  10. Timothy Dunne & Shawn Klimek & Mark Roberts & Daniel Yi Xu, 2009. "Entry, Exit, and the Determinants of Market Structure," Working Papers 09-23, Center for Economic Studies, U.S. Census Bureau.
  11. Ackerberg, Daniel & Lanier Benkard, C. & Berry, Steven & Pakes, Ariel, 2007. "Econometric Tools for Analyzing Market Outcomes," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 63 Elsevier.
  12. Panle Jia, 2008. "What Happens When Wal-Mart Comes to Town: An Empirical Analysis of the Discount Retailing Industry," Econometrica, Econometric Society, vol. 76(6), pages 1263-1316, November.
  13. repec:rje:randje:v:37:y:2006:i:4:p:964-982 is not listed on IDEAS
  14. Olivier Boylaud & Giuseppe Nicoletti, 2001. "Regulatory reform in retail distribution," OECD Economic Studies, OECD Publishing, vol. 2001(1), pages 253-274.
  15. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  16. Rachel Griffith & Heike Harmgart, 2005. "Retail productivity," IFS Working Papers W05/07, Institute for Fiscal Studies.
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