Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1102: Entry Regulations, Welfare and Determinants of Market Structure

Florin Maican () and Matilda Orth ()
Additional contact information
Florin Maican: University of Gothenburg
Matilda Orth: Research Institute of Industrial Economics (IFN)

Abstract: We use a dynamic oligopoly model of entry and exit with store-type differentiation to evaluate how entry regulations affect 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. This study sheds light on the long-run implications of entry regulations for the welfare of differentiated product industries with endogenous entry and exit.

Keywords: Imperfect competition; product differentiation; retail markets; entry; exit; sunk costs; welfare

JEL-codes: L11; L13; L81

73 pages, December 28, 2015

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