Entry Regulations, Product Differentiation and Determinants of Market Structure

Research, Preprint OPEN
Maican, Florin; Orth, Matilda;
  • Publisher: Research Institute of Industrial Economics (IFN) Stockholm
  • Subject: L81 | sunk costs | Imperfect competition | L11 | L13 | entry | exit | Imperfect competition; Product differentiation; Retail markets; Entry; Exit; Sunk costs | product differentiation | retail markets
    • jel: jel:L81 | jel:L11 | jel:L13
      ddc: ddc:330
    mesheuropmc: health care economics and organizations

We use a dynamic oligopoly model of entry and exit to evaluate how entry regulations affect profitability and market structure in retail. The model incorporates demand and store-level heterogeneity. Based on unique data for all retail food stores in Sweden, we find that... View more
  • References (38)
    38 references, page 1 of 4

    6Elejalde (2012) investigates U.S. banks and finds that single-market banks have higher sunk costs of entry than multi-market banks.

    7See also Asplund and Nocke (2006). Ackerberg et al. (2007) survey recent econometric methods in Industrial Organization including dynamic games. Maican (2010) uses a dynamic framework to analyze store format repositioning in the Swedish retail food market. There is a growing body of literature that analyzes retail chain expansion where exit is extremely rare (e.g., Toivanen and Waterson, 2011; Beresteanu et al., 2010; Holmes, 2011; Basker et al., 2012). There are studies that investigate store location in retail markets that mostly build on static models (e.g., Seim, 2006; Jia, 2008; Nishida, 2010; Holmes, 2011; Orth, 2011; Ellickson et al., 2013). In Appendix D, we explicitly show how to account for location differentiation in our dynamic framework (Davis, 2006; Seim, 2006).

    8Pakes et al. (2007) claim that the correct equilibrium will be selected for sufficiently large samples.

    14In 1997, Axel Johnson and the D-group merged, initiating more centralized decision making and more uniformly designed store concepts.

    15The Social Democratic Party collaborates with the Left Party and the Green Party. The non-socialist group consists of the Moderate Party, most often together with the Liberal Party, Christian Democrats, and the Center Party. The Center Party is traditionally strong in rural areas. For our purposes, we therefore only consider the Moderate Party, the Liberal Party and Christian Democrats in the non-socialist group.

    16In addition, we have data on the number of approved PBA applications that allow the entry of retail stores. A high number of approved applications that allow retail stores to enter the market indicates a more liberal application of the PBA. The data are collected by surveys of 163 of the 290 municipalities and are available for three time periods: 1987-1992, 1992-1996, and 1997-2000 (Swedish Competition Authority, 2001:4). The survey was unfortunately not carried during our study period, i.e., 2001-2008. Importantly, the correlation between the number of approved applications for retail stores and the total number of approved applications is as high as 0.83.

    17See Suzuki (2013).

    18The results using different regulation indexes are available from the authors upon request.

    19There are about 1,300 gas stations in the data every year: 1,317 (2001) and 1,298 (2008).

    Dunne, T., S. Klimek, M. Roberts, and Y. Xu (2013): “Entry, Exit and the Determinants of Market Structure,” The RAND Journal of Economics ( forthcoming).

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