Market Structure and Product Assortment: Evidence from a Natural Experiment in Liquor Licensure

Gastón Illanes and Sarah Moshary

No 27016, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine how market structure, measured as the number of firms, affects prices, quantities, product assortment, and consumer surplus. Our analysis exploits Washington’s deregulation of spirit sales, which generated exogenous variation in market structure across the state. Consistent with the uniform pricing literature, we find no effect of increased competition on prices. Rather, we document an expansion of product assortment, which in turn increases purchasing. Using a discrete-choice demand model, we estimate that wider assortments increase consumer surplus by $3.20/month when moving from monopoly to duopoly. However, the likelihood that a household engages in heavy drinking, as defined by the CDC, increases by 5.6 percentage points, raising concerns about social welfare.

JEL-codes: D43 D62 L43 L66 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-com and nep-ind
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