The costs of zoning regulations in retail chains: the case of the City Planning Act of 1968 in Japan

The deregulation of zoning restrictions on retailers has been at the forefront of urban policy debates in recent years. Despite the increasing attention, however, we know surprisingly little about how the zoning regulations, which impose a constraint on the supply of land for a particular use, affect retailers in urban areas. This paper examines the effect of the zoning regulations introduced in 1968 in Japan on entry of convenience-store outlets. The act specifies two zoning restrictions for retail outlets. First, the law prohibits building commercial outlets in specified residential and industrial areas (“type 1 zoning”). Second, the law requires a developer to obtain permission from the local government to develop an outlet in specified areas (“type 2 zoning”). To account for the spatial dependence in demand, costs, and zoning regulation status across markets, this paper employs an equilibrium model of store-network choice by multistore firms. Using the cross-sectional data of entry and zoning in Okinawa in 2002, the paper finds hypothetically eliminating the type 1 and type 2 regulations would increase the total number of convenience-store outlets by 10–14 and 2–3 %, respectively. Although the magnitude of the increase in store counts and sales are similar across two national chains in Okinawa, the geographical markets in which each firm increases its outlets after the deregulation differ across these two chains.     

品牌进入次序优势的经济解释

作者利用品牌经济学理论和其“选择成本范式”的分析框架研究品牌进入次序的优势及其产生的原因。通过对一个简单模型的分析表明,“趋利避害”的消费者的选择行为将给第一个进入市场的品牌以持久的优势,原因在于该品牌降低了消费者选择行为的局限条件—选择成本,而后进入市场的品牌,由于转换成本的存在,将使其选择成本高于先进入市场的品牌,从而使其处于劣势的地位,因此后进入市场品牌的品类模仿成功的可能性大大降低。     

The Impact of Cost Changes on Industry Entry and Exit

Increases in costs may have interesting, non-obvious effects on industry entry and exit. Three cases are possible when costs rise: the competitor neutral case, in which entry decreases and exit increases, entrant favoring, in which entry and exit both increase, and incumbent favoring, in which entry and exit both decrease. The model places restrictions on which outcomes are possible given which costs rise (marginal or fixed). The model can be used to examine the impacts of cost-increasing regulation or exogenous process innovation on industry entry and exit.      

Capacity-based versus time-based access charges in telecommunications

The Spanish telecommunications regulator recently introduced a capacity-based access system. Under this regulation, entrants pay a flat charge for the interconnection circuits leased to the incumbent operator and are able to freely use these circuits to provide telecommunications services. This paper determines the optimal capacity-based access charge in the presence of time varying demand and capacity constraints and compares this regulation with the traditional time of use access system. The analysis shows that either type of regulation allows the incumbent to recover its fixed costs and can promote the same pattern of entry. Finally, the optimal capacity-based access charge when the entrant has market power is derived.      

Offset Credits in the EU ETS: A Quantile Estimation of Firm-Level Transaction Costs

International carbon offset certificates were cheaper than European Union Allowances, although they were substitutes within the EU Emissions Trading System (EU ETS). Thus, firms had a strong incentive to use offset certificates. However, a considerable number of firms did not exhaust their offset quota and, by doing so, seemingly forwent profits. While most literature on emissions trading evaluates the efficiency of regulation in a frictionless world, in practice firms incur costs when complying with regulation. In order to assess the relevance of trade-related fixed transaction costs, this study examines the use of international offset credits in the EU ETS. It establishes a model of firm decision under fixed (quantity-invariant) entry costs and estimates the size of such costs rationalizing firm behavior using semi-parametric binary quantile regressions. Comparing binary quantile results with probit estimates shows that high average transaction costs result from a strongly skewed underlying distribution. For most firms, the bulk of transaction costs stems from certificate trading in general, rather than additional participation in offset trading.     

Entry regulation and international trade

We use cross-country, cross-industry data to analyse the relationship between entry regulation and international trade. We find robust evidence that entry regulation discourages exports of industries with low natural barriers to entry. This implies that, in international markets, countries with heavy entry regulation have a comparative disadvantage in industries that are technologically easy to enter. Further analysis shows that the result is partly due to the negative impact of entry regulation on productivity.     

ENTRY REGULATIONS,WELFARE, AND DETERMINANTS OF MARKET STRUCTURE

Welfare effects of entry regulations are theoretically ambiguous in differentiated product markets. We use a dynamic oligopoly model of entry and exit with store‐type differentiation and static price setting to evaluate how entry regulations affect long‐run profitability, market structure, and welfare. Based on unique data for all retail food stores in Sweden, we estimate demand, recover variable profits, and estimate entry costs and fixed costs by store type. Counterfactual policy experiments show that welfare increases when competition is enhanced by lower entry costs. Protecting small stores by imposing licensing fees on large stores is not welfare enhancing.     

Pollution Abatement as a Barrier to Entry

With the dramatic increase in federal and state environmental regulation in the 1970s, the cost of compliance also rose. While compliance costs have been discussed elsewhere, the implications for the competitiveness of markets have been evaluated using case studies of specific law changes and specific industries. This study examines the role of environmental regulations as barriers to entry using a panel of industries over ten years. The results indicate that environmental costs increase the value of q for the top quartile of firms, which suggests that compliance cost constitutes a barrier to entry and creates rents for larger existing firms.     

土地双垄断情况下的收益博弈

本文通过重复信号博弈模型和双垄断模型,运用制度分析法来考察现有土地制度安排下地方政府和中央政府对土地利用的最优反应,结果显示:(1)中央政府对地方政府的监管成本过高,导致土地垄断利润分配过程中地方政府获利更大,进而催生了《土地管理法》;(2)现有地方土地资源利用完全不受限制,导致地方经济发展失去了中央宏观调控的约束。因此,本文提出相关对策建议。     

Overseas business costs and firm export performance

Abstract.  The recent microeconomic literature on international trade has highlighted the importance of firm characteristics and trade costs for exports. This study provides evidence on one type of those costs, the costs of doing business overseas, from a theoretical and empirical perspective. Controlling for firm- and industry-level covariates, we find that improvements in the business environment of foreign countries lead to an increase in the export intensity of exporters in the UK manufacturing sector and additional export market entry. Further investigation suggests that important determinants of foreign business costs include factors relating to legal structure, property rights, and business regulation.     

Modelling economic hysteresis losses caused by sunk adjustment costs

Transition from one economic equilibrium to another as a consequence of shocks is often associated with sunk adjustment costs. Firm-specific sunk market entry investments (or sunk market exit costs) in case of a reaction to price shocks are an example. These adjustment costs lead to a dynamic supply pattern similar to hysteresis. In analogy to “hysteresis losses” in ferromagnetism, the authors explicitly model dynamic adjustment losses in the course of market entry and exit cycles. They start from the micro level of a single firm and use explicit aggregation tools from hysteresis theory in mathematics and physics to calculate dynamic losses. The authors show that strong market fluctuations generate disproportionately large hysteresis losses for producers. This could give a reason for the implementation of stabilizing measures and policies to prevent strong (price) variations or, alternatively, to reduce the sunk entry and exit costs.     

The effect of forest land use on the cost of drinking water supply: A spatial econometric analysis

Forest land use is often associated with the protection of water resources from contamination and the reduced cost of drinking water supply. This study attempted to measure the value of the forest on the quality of water resources from a contingent market, namely drinking water supply, by estimating variations in drinking water costs as a function of variations in land uses. Spatial correlations were taken into account because of the use of different geographical scales (i.e., water service area and land uses) and the potential existence of organizational and technological spillovers between water services. We found a significant negative effect of forest land use on water costs. We found no evidence of spatial spillovers concerning the management regime but did find that factors related to the scarcity of resources in neighboring water services have an impact on water costs.     

Entry restrictions and the determination of quality

Entry restrictions are a common form of regulation in markets and occupations, either as a means of limiting the size of a market or affecting the quality of products or services provided by it. This paper analyzes demand, cost and informational characteristics that affect the impact of this type of policies on the quality mix of products provided by an industry and the welfare of its consumers. Selective increases in the costs of entry such as licensing requirements and direct restrictions with competitive bidding for entry rights are considered. We analyze the effects of these policies on entry decisions and also the additional selection effects that are obtained when exit is allowed for and the rights to participate in an industry can be freely traded.     

Cost-Padding in Profit-Regulated Firms*

When entry into an industry is restricted, economic regulation of that industry is often directed at preventing existing firms from monopoly pricing behaviour. One form of such regulation is to set prices so as to control the level of profits earned by these firms. This paper briefly reviews the relevant economic literature and presents a model of the regulated firm in which such price-setting procedures provide an incentive to inflate costs above minimum levels. The welfare cost of this form of regulation can then exceed that occurring at the unconstrained monopoly outcome. The setting of air fares under the Two-Airline Policy and the regulation of natural gas in NSW are discussed in the context of this analysis.     

Trade, inequality, and the political economy of institutions

This paper investigates the relationship between international trade and the quality of economic institutions. We model institutions as fixed costs of entry, in a framework that has two key features. First, preferences over entry costs differ across firms and depend on firm size. Larger firms prefer to set higher costs of entry, in order to reduce competition. Second, these costs are endogenously determined in a political economy equilibrium. Trade opening can lead to higher entry costs when it changes the political power in favor of a small elite of large exporters, who in turn prefer to install high entry barriers.     

Government policy in the formal and informal sectors

The paper quantitatively investigates, in general equilibrium, the interaction between the firms' choice to operate in the formal or the informal sector and government policy on taxation and enforcement, given a level of regulation. A static version of Ghironi and Melitz's (2005) industry model is used to show that firms with lower productivity endogenously choose to operate in the informal sector. I use cross-country data on taxes, measures of informality, and measures of regulation (entry and compliance costs, red tape, etc.) to back out how high the enforcement levels must be country by country to make the theory match the data. The welfare gains from policy reforms are on average 1.2% (measured in terms of consumption) for OECD countries. I also find that the welfare gains from reducing regulation are on average 2.1%. Finally, performing a similar decomposition to that of Hall and Jones (1999), I find that distortions associated with informality account for a factor of 1.5 of the output per capita difference between the richest and the poorest countries.     

Investment Liberalization and Cross‐Border Acquisitions: The Effect of Partial Foreign Ownership

This paper investigates the optimal strategy for a multinational to conduct FDI. We find that the incentives to use acquisition rather than greenfield investment change significantly if the multinational is allowed to have already an ownership interest in the target local firm before the market is fully liberalized. Interestingly, when investment costs are sufficiently high, the multinational prefers not entering the market at all with partial ownership in place, whereas a cross‐border takeover would be the optimal entry mode otherwise. For intermediate levels of entry costs, holding a stake in the local producer reverses positively the profitability of a full acquisition compared to greenfield investment.     

Coherence,Causality, and Effectiveness of the EU Environmental Policy System: Results of Complementary Statistical and Econometric Analyses

The spatial differentiation of input-based pollution fees should in theory decrease compliance costs in the case of nitrate pollution of water bodies from agriculture because both the damage and the compliance costs vary over space. However, the empirical evidence in the literature does not agree on the extent of the potential savings from differentiation. We address this issue in the case of France, using a mathematical programming model of agricultural supply (AROPAj). The modeling approach used accounts for the spatial diversity of nitrate pollution and the heterogeneity of farming systems. Our results reveal the efficiency gains from differentiating pollution fees among polluters and water bodies. For instance, firm-specific and water body-specific taxes represent respectively 5.8 and 32.5 % of farmers’ gross margin in terms of compliance costs, whereas a uniform policy at the river-basin district or national level leads to major economic losses and abandonment of the agricultural activity. These results stem from the lower tax rates faced by farmers in less polluted areas, for scenarios based on spatial differentiation. Our estimates suggest that realistic regulation via input-based pollution fees should be differentiated in order to significantly reduce the financial burden on farmers of conforming to predefined pollution levels. Some potential adverse effects related to input-based taxation and land use change call for additional fine-scale nitrogen pollution regulation (e.g. limitations on crop switching).     

COMPETITION‐ACCELERATING PUBLIC INVESTMENTS*

We investigate the effects of infrastructure investments that reduce transport costs. We use a spatial model of Salop (1979). It is well known that the number of firms is excessive at free‐entry equilibrium (excess entry theorem). We find that the optimal investment level exceeds the ex post cost‐minimising level because investments accelerate competition and reduce the number of entering firms; resulting in the improvement of welfare. We also show that, in cases where the excess‐entry theorem is true, the desirable policy is the one accelerating, rather than restricting, competition.     

Trade, Entry Barriers, and Home Market Effects

This paper re‐examines the relationship between entry barriers and home market effects and departs from recent work by using returns to scale as a direct measure of entry barriers as opposed to relying on the level of product differentiation as an indirect proxy for barriers to entry. In contrast to earlier work, results of this study do not indicate a significant relationship between home market effects and entry barriers. In addition, examination of trade costs reveals the importance of these costs in the numéraire sector. These two observations are consistent with the theoretical prediction that home market effects are insignificant in the presence of symmetric trade costs across sectors. Consequently, a more direct measure of barriers to entry and an explicit consideration of trade costs indicate that the link between home market effects and barriers to entry is not as strong as predicted by previous work.