Friday, December 13, 2013
Florin Maican, University of Gothenburg, Department of Economics; Research Institute of Industrial Economics (IFN) and Matilda Orth, Research Institute of Industrial Economics (IFN), Stockholm discuss Entry Regulations, Product Differentiation and Determinants of Market Structure.
ABSTRACT: 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 the average entry costs for small and large stores are 10 and 18 percent lower, respectively, in markets with liberal compared with restrictive regulations. Counterfactual simulations show that lower entry costs in restrictive markets result in higher entry rates and allow us to quantify the consequences of regulations in light of trade-offs between small and large stores.