Entry Barriers in Retail Trade

Abstract

The 1998 reform of the Italian retail trade sector delegated the regulation of entry of large stores to the regional governments. We use the local variation in regulation to determine the eects of entry barriers on sectoral performance. We address the endogeneity of entry barriers through local xed eects and using political variables as instruments. We also control for dierences in trends and for area-wide shocks. We nd that entry barriers are associated with substantially larger prot margins and lower productivity of incumbent rms. Liberalizing entry has a positive eect on investment in ICT, increases employment and compresses labor costs in large shops. In areas with more stringent entry regulation, lower productivity coupled with larger margins results in higher consumer prices. JEL classication: L5, L11, L81