Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1386: Entry Regulations and Product Variety in Retail

Matilda Orth () and Florin Maican ()
Additional contact information
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 estimates a dynamic model of store adjustments in product variety that considers multiproduct service technology to evaluate the impact of entry regulations on variety and long-run profits in Swedish retail. Using rich data on stores and product categories, we find that more liberal entry regulation increases productivity and decreases the adjustment costs of variety. Counterfactual simulations of modest liberalizations of entry incentivize incumbents to offer more product categories to consumers while increasing efficiency and long-run profits. Regional differences are reduced as consumers and incumbents obtain more benefits in markets with restrictive regulation. Generous liberalizations of entry induce net exit of product categories and harm incumbents in markets with limited demand.

Keywords: Retail markets; Entry regulation; Product variety; Productivity; Competition

JEL-codes: L11; L13; L81

71 pages, April 1, 2021

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