Working Paper: NBER ID: w27016
Authors: Gastón Illanes; Sarah Moshary
Abstract: We examine how market structure, measured as the number of firms, affects prices, quantities, product assortment, and consumer surplus. Our analysis exploits Washington’s deregulation of spirit sales, which generated exogenous variation in market structure across the state. Consistent with the uniform pricing literature, we find no effect of increased competition on prices. Rather, we document an expansion of product assortment, which in turn increases purchasing. Using a discrete-choice demand model, we estimate that wider assortments increase consumer surplus by $3.20/month when moving from monopoly to duopoly. However, the likelihood that a household engages in heavy drinking, as defined by the CDC, increases by 5.6 percentage points, raising concerns about social welfare.
Keywords: market structure; product assortment; liquor licensure; consumer surplus
JEL Codes: D43; D62; L43; L66
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increasing competition (L13) | product assortment (L81) |
| increasing competition (L13) | consumer surplus (D46) |
| increasing competition (L13) | prices (P22) |
| expansion of product assortment (L81) | consumer surplus (D46) |
| duopoly (L12) | product assortment (L81) |
| duopoly (L12) | likelihood of heavy drinking (I12) |