Entry Regulations and Product Variety in Retail

We study how changes in competition from entry regulations impact stores’ incentives to adjust product variety. Using Swedish data, we estimate a dynamic model of endogenous product offerings where stores utilize multiproduct technology to generate sales. The median long-run benefit of adding one more product category is 20 percent higher in restrictive than in liberal markets. Counterfactuals show that more liberal regulation spurs repositioning and increases variety, especially in rural markets, driven by a new mechanism of productivity gains and cost reductions. Strong liberalization enhances product entry in markets with restrictive regulation but less in rural markets with limited demand.