Does Planning Regulation Protect Independent Retailers?

Regulations aimed at curbing the entry of large retail stores have been introduced in many countries to protect independent retailers. Analyzing a planning reform launched in the United Kingdom in the 1990s, I show that independent retailers were actually harmed by the creation of entry barriers against large stores. Instead of simply reducing the number of new large stores entering a market, the entry barriers created the incentive for large retail chains to invest in smaller and more centrally located formats, which competed more directly with independents and accelerated their decline. Overall, these findings suggest that restricting the entry of large stores does not necessarily lead to a world with fewer stores, but one with different stores, with uncertain competitive effects on independent retailers…Planning regulations are often used to curb the entry of large out of town retail stores—also known as “big-boxes.” These policies, which are widely adopted across OECD countries (Ennis 2008; Pilat 1997), find their justification in the need to prevent the possible negative externalities generated by big-boxes on local communities (e.g. congestion, damages to the environmental décor) and, in particular, to protect the survival of smaller retailers and the amenities they provide—such as personalized and local service—from new sources of competitive pressure…For example, WalMartwatch, an interest group that challenges Wal-Mart expansion across the United States, reports on its website: “You can stop superstore sprawl with one sentence. Just amend your zoning code to place a limit on the size of buildings.”

Raffaella Sadun

Review of Economics and Statistics

December 9, 2015

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