Working Paper Series,
Research Institute of Industrial Economics

Abstract: This paper evaluates the impact of entry regulations on stores’ incentives to adjust product variety and long-run performance. We use rich Swedish data on stores, product categories, and local regulations to estimate a dynamic model of endogenous product offerings where stores utilize multiproduct service technology to generate sales. The median long-run benefit of adding one more product category is approximately 20 percent higher in restrictive markets than in liberal markets. A more liberal regulation spurs repositioning and increases product variety, driven by a new mechanism of cost reductions and productivity gains. Counterfactuals show that modest liberalization of regulation induces 6.6 percent of stores to add categories in rural markets, where category entry accounts for 2.3 percent of all products. Strong liberalization enhances category entry in markets with restrictive regulation but less in rural markets with limited demand. Lower costs of adjusting variety imply more category entry and less category exit, whereas shutting down the productivity channel reduces variety. Incumbents’ long-run profits decrease from more intense competition, whereas stores that adjust their product variety gain a larger market share.

Keywords: Retail; Entry regulations; Competition dynamics; Variety; Productivity

JEL-codes: L11; L13; L81

Language: English

85 pages, First version: April 1, 2021. Revised: April 25, 2024. Earlier revisions: April 10, 2022, May 23, 2023.

Full text files

wp1386.pdf  Full text

Download statistics

• Research Institute of Industrial Economics
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Elisabeth Gustafsson ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2024-04-25 09:18:49.