DP6713 Supermarkets and Planning Regulation

Author(s): Rachel Griffith , Heike Harmgart

Publication Date: February 2008

Keyword(s): entry , land use regulation , retail

JEL(s): L11 , L52 , L81

Programme Areas: Industrial Organization

Link to this Page: www.cepr.org/pubs/dps/DP6713.asp.asp

We are interested in evaluating the impact of restrictive planning regulation on entry into the UK grocery retail industry. We estimate a model similar to Bresnahan and Reiss (1991) where we allow for multiple store formats. We find that more restrictive planning regulation reduces the number of large format supermarkets in equilibrium. However, the impact is overstated if variation in demographic characteristics across markets is not also controlled for. Our estimates suggest that restrictive planning regulation leads to a loss to consumers of up to £10m per annum. This cost must be offset against any benefits that arise, e.g. due to reduced congestion.