Matilda Orth () and Florin Maican ()
Matilda Orth: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Florin Maican: Department of Economics, University of Gothenburg,, Postal: and Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Abstract: This paper evaluates the impact of entry regulations on stores’ incentives to reposition product variety and long-run performance. We estimate a dynamic model of store adjustments in product variety and inputs where stores use a multiproduct service technology to generate sales. Using rich Swedish data on stores and product categories, we find that more liberal regulation spurs repositioning in product variety and productivity. Counterfactual simulations show that modest liberalizations of entry incentivize incumbents to adjust the product categories offered to consumers while increasing efficiency and sales per category. Generous liberalizations of entry induce net exit of product categories and harm incumbents in markets with limited demand. Cost subsidies can help to reduce regional differences, allowing consumers and incumbents to obtain more long-term benefits, especially in rural markets.
72 pages, First version: April 1, 2021. Revised: April 10, 2022.
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