The Fourth Commandment: Is it Pareto Efficient?

Abstract

A Bill to legalise Sunday trading has recently been defeated in the British parliament. An argument commonly advanced by traders opposing liberalisation starts by observing that if a few shops were to choose to open on Sunday they would attract so much business from retailers trading only on weekdays that soon all shops would be forced to open on Sunday. Some customers might find this convenient, but, to the extent they were merely induced to change their shopping day, no new demand would be created. Without an increase in weekly turnover the additional costs of Sunday opening would bankrupt some shops and the survivors would have to raise prices. Thus, there is no guarantee that, on balance, consumers will gain. A counter-argument denies that all shops would be forced to open on Sundays. Insofar as consumers really prefer lower prices to the convenience of Sunday opening then a shop which closed on Sunday and used a fraction of the cost saving to reduce prices for the rest of the week could maintain its sales and increase its profit. Giving retailers the option of Sunday opening therefore enables them to respond more sensitively to consumers' preferences as between the convenience of Sunday .shopping and lower prices. This seems to be the position taken by Tullock (I975, pp. 673-4); my guess is that most economists would feel sympathetic to this argument as I certainly am. However, matters are not entirely straightforward. The retail trade can hardly be regarded as perfectly competitive and, starting from a second-best equilibrium, there is no guarantee that permitting more competition in one dimension of the characteristic space yields a potential Pareto gain. These considerations suggest that the argument be pursued at a more formal level. The following section examines Sunday opening in the context of a standard model of imperfect competition. The principal results are that the removal of the restrictions may result in a social loss, with a loss being less likely the more competitive is the market. An informal preview of the argument may be helpful. Given that travel costs must be incurred to make a purchase, customers who live close to a shop cannot easily be enticed away by competitors. The, real fight is for buyers located approximately equi-distant from two neighbouring stores. Ideally, each shop would like to offer price cuts to these distant customers only but this is not feasible. However, for customers who go out to work, the opportunity cost of shopping time may well be lowest on Sunday. So, for at least some customers, Sunday opening results in a fall in transport costs, thereby offering more to