The Welfare Effects of Sunday Shopping Regulation in Retail Markets

Abstract

This dissertation consists of three chapters. In Chapter 1, I introduce industry background on entry regulation and explain why entry is regulated in retail sector. Then, I briefly review empirical studies on the impact of entry regulation, focusing on recent development in the literature. Finally, I argue that regulation on business hours of retail stores is a special case of entry regulation. In Chapter 2, I study the efficiency consequences of how many days that retail stores operate. Just as free entry of firms can lead to inefficient outcomes, free choices of days of operation can also lead to inefficient outcomes. While consumers are unambiguously better off with more days and hours of operation, producers can be either better or worse off depending on consumer preferences and market structure. I study the liquor market in Pennsylvania and quantify consumer gains from changes in the number of Sunday-opening stores and evaluate the welfare effects of government policies regulating Sunday openings. Pennsylvania relaxed its ban on Sunday sales, allowing me to document the impact of Sunday operation on consumption patterns. Using data on before and after the policy change, I document that an increase in the number of Sunday-opening stores generates substantial “new” sales and leads to consumer substitution, both between stores and between days of week within a store. To directly quantify welfare benefits, I estimate a random coefficient model of demand using detailed store-level sales data. The demand estimates allow me to simulate consumer choices and I find that opening all stores on Sundays would increase consumer surplus by 3.6% compared to the actual policy in Pennsylvania with a quarter of stores open on Sundays. I also use the model to estimate the welfare-maximizing number of Sunday stores and find that the actual number is 70% below the optimal level. Finally, I find that private stores, whether atomistic or monopoly, would deliver more Sunday stores than the observed number. In Chapter 3, I study government policies regulating Sunday openings and quantify the effect on large and small stores. Entry regulations in retail market are often implemented to protect small independent retailers from competition by large stores. Using liquor retailer information in Florida, I first document that counties with a lot of small stores tend to prohibit Sunday sales. To quantify the welfare effects, I use the demand estimates from liquor retail market in Pennsylvania. I show that completely banning Sunday opening decreases producer surplus of large stores by 7.0% and that of small stores by 0.9% compared to deregulation. I also find that government policy that prohibits only large stores from opening on Sundays, leads to 52.8% of small stores opening on Sundays. Under this counterfactual policy, large stores’ surplus decreases by 8.7% and small stores’ producer surplus increases by 6.0% compared to free entry level. Finally, I find that total surplus is lower with the regulation since welfare of consumers and large stores decrease.