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Entry Regulations, Product Differentiation and Determinants of Market Structure

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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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
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
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  1. J. Levin & P. Bajari, 2004. "Estimating Dynamic Models of Imperfect Competition," 2004 Meeting Papers 579, Society for Economic Dynamics.
  2. 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.
  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 08-23r, Center for Economic Studies, U.S. Census Bureau, revised Sep 2011.
  4. 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.
  5. Timothy Dunne & Shawn D. Klimek & Mark J. Roberts & Daniel Yi Xu, 2009. "Entry, Exit, and the Determinants of Market Structure," NBER Working Papers 15313, National Bureau of Economic Research, Inc.
  6. 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.
  7. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
  8. Rachel Griffith & Heike Harmgart, 2005. "Retail productivity," IFS Working Papers W05/07, Institute for Fiscal Studies.
  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. 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.
  11. 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).
  12. Martin Pesendorfer & Philipp Schmidt-Dengler, 2008. "Asymptotic Least Squares Estimators for Dynamic Games -super-1," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 901-928.
  13. Olivier Boylaud & Giuseppe Nicoletti, 2001. "Regulatory reform in retail distribution," OECD Economic Studies, OECD Publishing, vol. 2001(1), pages 253-274.
  14. 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.
  15. repec:rje:randje:v:37:y:2006:i:4:p:964-982 is not listed on IDEAS
  16. 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.
  17. 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.
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