Estimating the Effect of Potential Entry on Market Outcomes Using a Licensure Threshold

Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 2-013

43 Pages Posted: 7 Dec 2015

See all articles by Gaston Illanes

Gaston Illanes

Massachusetts Institute of Technology (MIT), Department of Economics, Students

Sarah Moshary

University of Chicago - Booth School of Business; eBay Research Labs

Date Written: June 6, 2015

Abstract

We study the effects of potential entry on market outcomes in the context of Washington state's 2012 switch from a state-run monopoly to private liquor sales. Concern about alcohol-related crime prompted regulators to institute a 10,000 square foot licensure requirement to curtail entry. This store size threshold generates plausibly exogenous variation in the number of eligible entrants in local liquor markets across the state. We find that widening the pool of potential entrants has a small effect on pricing, but a significant effect on product offerings. In particular, markets with more potential entrants see a compositional shift in product offerings towards cheaper goods. Further, we find that the size requirement changes the composition of entrant size, rather than the aggregate number of entrants.

Keywords: Liquor, Alcohol, Privatization, Entry, Competition

JEL Classification: L13, L43

Suggested Citation

Illanes, Gaston and Moshary, Sarah, Estimating the Effect of Potential Entry on Market Outcomes Using a Licensure Threshold (June 6, 2015). Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 2-013. Available at SSRN: https://ssrn.com/abstract=2697280 or http://dx.doi.org/10.2139/ssrn.2697280

Gaston Illanes (Contact Author)

Massachusetts Institute of Technology (MIT), Department of Economics, Students ( email )

Cambridge, MA
United States

Sarah Moshary

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

eBay Research Labs ( email )

2065 Hamilton Avenue
San Jose, CA
United States

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