Abstract
Abstract Regulations curbing the entry of large retail stores have been introduced in many countries to protect independent retailers. Analyzing a planning reform launched in the United Kingdom in the 1990s, I show that independent retailers were actually harmed by the creation of entry barriers against large stores. This is because the entry barriers created the incentive for large retail chains to invest in smaller and more centrally located formats, which competed more directly with independents and accelerated their decline. Overall, these findings suggest that restricting the entry of large stores may exert negative competitive effects on independent retailers.
Highlights
Planning regulations are often used to curb the entry of large out of town retail stores— known as “big-boxes.” These policies, which are widely adopted across OECD countries (Ennis 2008; Pilat 1997), find their justification in the need to prevent the possible negative externalities generated by big-boxes on local communities and, in particular, to protect the survival of smaller retailers and the amenities they provide—such as personalized and local service—from new sources of competitive pressure.1In recent years, entry regulations have been severely criticized for their possible effects on the efficiency of the retail sector
The analysis shows that a one standard deviation decrease in the number of planning grants given in a Local Authority coincided with a 1.7% increase in the employment growth of small chain formats, and a 0.48% decrease in the employment growth of independent retailers
I investigate the employment effects of planning regulations using a recent reform introduced in the United Kingdom, which substantially affected the cost of opening large retail stores
Summary
Planning regulations are often used to curb the entry of large out of town retail stores— known as “big-boxes.” These policies, which are widely adopted across OECD countries (Ennis 2008; Pilat 1997), find their justification in the need to prevent the possible negative externalities generated by big-boxes on local communities (e.g. congestion, damages to the environmental décor) and, in particular, to protect the survival of smaller retailers and the amenities they provide—such as personalized and local service—from new sources of competitive pressure.. Viviano (2008) investigates the employment effects a recent reform, which introduced significant heterogeneity in planning restrictiveness across Italian regions She uses a difference in differences approach to show that entry regulations have a negative and sizeable impact on employment growth, including small retail trade shops, but the analysis does not explore the sources of employment growth, or the mechanism behind the employment effects of planning policies.. Cheshire, Hilber, and Kaplanis (2011) adapt the same identification strategy proposed in this paper to estimate the effects of planning regulation on retail productivity Their results—based on a small cross sectional dataset of English chain stores—show the presence of significant and negative effects of regulation on firm productivity, due to the emergence of smaller retail formats and the suboptimality of retail locations induced by the regulatory restrictions. This is of interest, as the interactions between big-boxes and independent stores might be differ in a context—such as the one prevalent in Europe—of higher agglomeration and density
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