Date Added: Sep 2009
The 1998 reform of the Italian retail trade sector delegated the regulation of entry of large stores to the regional governments. The authors use the local variation in regulation to determine the effects of entry barriers on sectoral performance. They address the endogeneity of entry barriers through local fixed effects and using political variables as instruments. They also control for differences in trends and for area-wide shocks. They 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.