Supermarkets competition in England and planning regulation

Abstract

We adapt the Bresnahan and Reiss (1991. Entry and competition in concentrated markets. The Journal of Political Economy 99, no. 5: 977–1009) model to allow for multiple store formats. We estimate the model using data for English supermarkets, and evaluate the impact of restrictive planning regulation on entry into the English grocery retail industry. We find that more restrictive planning regulation reduces the number of large format supermarkets in equilibrium. However, the impact is overstated if variation in demographic characteristics across markets is not also controlled for. Our estimates suggest that restrictive planning regulation leads to a loss to consumers of up to £10 m per annum. This cost must be offset against any benefits that arise, e.g. due to reduced congestion.

Keywords:

• land use regulation
• retail entry

Acknowledgments

The analysis contained in this article was funded by the ESRC/EPSRC Advanced Institute of Management Research (AIM) and the ESRC Centre for the Microeconomic Analysis of Public Policy at the IFS. We would like to thank Bronwyn Hall, Rupert Harrison, Jonathan Haskel, Mari Sako, Raffaela Sadun, Helen Simpson and John Van Reenen for helpful comments and discussions.