The Impact of Retail Regulations on Consumer Prices

Abstract

This paper studies the impact of the regulation of the retail sector on competition and consumer prices. We first perform an international analysis using OECD data. Our findings indicate that there is correlation between changes in retail regulation and changes in food prices, which suggests that regulation has an impact on competition between companies, and in turn has an impact on consumer prices. After this we look at two specific regulatory measures: the Sunday shopping ban and the regulation restricting the building of new stores with large floor area (known in Hungary as the “plaza-stop” act). In our study we analyse the average consumer price changes of 17 food products between 2006 and 2017 based on monthly data using FGLS panel regression method. Our findings show that the compulsory Sunday closing had no significant impact on consumer prices during the one year the regulation was in effect. On the other hand, modern retail formats and the penetration of international chains significantly reduced consumer prices. Based on this result, establishing entry barriers in retail had an unfavorable effect on consumers materializing in higher prices.