ENTRY REGULATIONS, WELFARE, AND DETERMINANTS OF MARKET STRUCTURE

Welfare effects of entry regulations are theoretically ambiguous in differentiated product markets. We use a dynamic oligopoly model of entry and exit with store-type differentiation and static price setting to evaluate how entry regulations affect long-run profitability, market structure, and welfa...

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Bibliographic Details
Published inInternational economic review (Philadelphia) Vol. 59; no. 2; pp. 727 - 756
Main Authors Maican, Florin G., Orth, Matilda
Format Journal Article
LanguageEnglish
Published Philadelphia Wiley Periodicals, Inc 01.05.2018
Blackwell Publishing Ltd
Subjects
Ambiguity
Business & Economics
competition
Costs
Differentiation
discrete-choice models
Economic models
Economic theory
Economics
Economics and Business
Ekonomi och näringsliv
equilibrium
Experiments
Fees & charges
Fixed costs
games
land-use regulation
Licensing
Market structure
Markets
Oligopoly
perfect industry dynamics
product differentiation
Profitability
Profits
Regulation
retail chains
Retail stores
Retailing industry
social inefficiency
wal-mart
Online AccessGet full text
ISSN0020-6598
1468-2354
DOI10.1111/iere.12286

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Summary:Welfare effects of entry regulations are theoretically ambiguous in differentiated product markets. We use a dynamic oligopoly model of entry and exit with store-type differentiation and static price setting to evaluate how entry regulations affect long-run profitability, market structure, and welfare. Based on unique data for all retail food stores in Sweden, we estimate demand, recover variable profits, and estimate entry costs and fixed costs by store type. Counterfactual policy experiments show that welfare increases when competition is enhanced by lower entry costs. Protecting small stores by imposing licensing fees on large stores is not welfare enhancing.
Bibliography:We would like to thank the editor and two anonymous referees for their excellent comments and suggestions. Furthermore, we thank John Asker, Emek Basker, Christoph Bauner, Gregory Crawford, Uli Doraszelski, Paul Grieco, Igal Hendel, Ariel Pakes, Amil Petrin, Mark Roberts, Philipp Schmidt‐Dengler, Junichi Suzuki, Yuya Takahashi, Otto Toivanen, Frank Verboven, and seminar participants at the Swedish National Conference on Economics, the 13th CEPR/JIE Conference on Applied IO, EEA‐ESEM, EARIE, and IIOC for their valuable comments. Special thanks to DELFI Marknadspartner, the Swedish Consumer Agency, Värderingsdata, and the Swedish National Organization of Pensioners (PRO) for providing the data. Financial support from the Swedish Retail and Wholesale Development Council, Torsten Söderbergs Stiftelse, and the Swedish Competition Authority is gratefully acknowledged.
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ISSN:0020-6598
1468-2354
DOI:10.1111/iere.12286