Working Paper: CEPR ID: DP15992
Authors: Florin Maican; Matilda Orth
Abstract: We study how changes in competition from entry regulations impact stores’ incentives to adjust product variety. Using Swedish data, we estimate a dynamic model of endogenous product offerings where stores utilize multiproduct technology to generate sales. The median long-run benefit of adding one more product category is 20 percent higher in restrictive than in liberal markets. Counterfactuals show that more liberal regulation spurs repositioning and increases variety, especially in rural markets, driven by a new mechanism of productivity gains and cost reductions. Strong liberalization enhances product entry in markets with restrictive regulation but less in rural markets with limited demand.
Keywords: retail markets; entry regulation; product variety; productivity; competition
JEL Codes: L11; L13; L81
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| more liberal entry regulations (Z38) | productivity (O49) |
| more liberal entry regulations (Z38) | adjustment costs associated with product variety (L15) |
| modest liberalizations of entry regulations (L59) | offer more product categories (Y90) |
| modest liberalizations of entry regulations (L59) | efficiency and long-run profits (D21) |
| generous liberalizations of entry regulations (L59) | net exit of product categories (Y90) |
| generous liberalizations of entry regulations (L59) | harm incumbents in markets with limited demand (D43) |