Working Paper No. 984

Entry Regulations, Product Differentiation and Determinants of Market Structure

Published: October 11, 2013, revised July 2014Pages: 55Keywords: Imperfect competition; Product differentiation; Retail markets; Entry; Exit; Sunk costsJEL-codes: L11; L13; L81

Entry Regulations, Product Differentiation and Determinants of Market Structure Florin Maican and Matilda Orth


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.

Matilda Orth

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Ph: +46 8 665 45 31
Mob: +46 73 642 3824
matilda.orth@ifn.se

Florin Maican

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Ph: +46 31 786 4866
Mob: +46 76 235 3039
florin.maican@ifn.se

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