Entry Barriers in Retail Trade

TLDR

The 1998 reform of the Italian retail trade sector delegated the regulation of entry of large stores to regional governments. The study uses local variation in regulation to assess how entry barriers affect sectoral performance. The analysis employs local fixed effects, political variables as instruments, and controls for trend differences and area‑wide shocks. Entry barriers are linked to higher profit margins, lower productivity, and higher consumer prices, while liberalization boosts ICT investment, employment, and reduces labor costs.

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 effects of entry barriers on sectoral performance. We address the endogeneity of entry barriers through local fixed effects and using political variables as instruments. We also control for differences in trends and for area-wide shocks. We find that entry barriers are associated with substantially larger profit margins and lower productivity of incumbent firms. Liberalizing entry has a positive effect 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.