Therefore, by using the model for optimal retail behavior an optimal rule for extending opening hours .... decrease at small stores, if opening hours are extended. Tanguay et al. ..... European Small Business Review 1: 57-62. OECD (1994): The ...
Vol. 64 (1996), No. 3, pp. 247-263
Journal of Economics Zeitschrift
f~ir
National6konomie
9 Springer-Verlag 1996 Printed in Austria
The Economic Effects of Extending Shop Opening Hours Raymond Gradus Received January 29, 1996; revised version received September 4, 1996
In this paper we investigate the economic effects of deregulation of shop opening hours legislation. The theoretical literature is rather mixed about the possible effects of such a policy. Using an empirical model for optimal retail behavior, it is shown that the economic potential can be high. It is demonstrated that employment goes up mainly because of an increase in threshold labor. However, the magnitude of this effect depends on the average number of additional hours as a consequence of deregulation. Therefore, by using the model for optimal retail behavior an optimal rule for extending opening hours is given. This rule implies that the potential for longer opening hours is high. It is, however, shown that in the noncooperative equilibrium this potential is higher than in the cooperative equilibrium, and that large-scale stores gain more from this deregulation.
Keywords: shop opening hours, deregulation, retail model. JEL classification: L51, D21.
1 Introduction One important measure in Europe to increase the prospects for growth and unemployment is deregulation. At the macrolevel, there is a lot of evidence that government legislation hampers growth and employment (e.g., EC, 1993; OECD, 1994). At the microlevel, however, it often turns out to be difficult to deregulate, given that general efficiency considerations have to be weighed against the interests of specific groups. Therefore, a clear-cut understanding of the economic effects of the various deregulation options is important. The focus of this contribution is on discussing the economic effects of liberalizing shop opening hours legislation. There are great differences in this legislation across Europe. In some countries, especially in Southern Europe, the interests of consumers
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dominate, and there are no legal restrictions for opening hours. Other countries, such as Germany, Denmark, Belgium, and the Netherlands, take more of specific interest groups, resulting in regulation for weekend and evening opening. However, the process towards less stringent legislation is clearly under way. Until June 1996 Dutch shops were allowed to be open for only 55 hours in a week and were not allowed to be open on evenings and on Sundays. A new law, where shops may be open from 6 to 22 from Monday until Saturday, has just passed Parliament in the Netherlands, and the most important barriers have just been removed in Germany as well. In countries such as the Netherlands, Belgium, and Germany, a debate about the effects is taking place with strictly opposite meanings. On the one side, some shop owners see extra opening hours as an important measure to strengthen their competitiveness, on the other side unions and other shop owners fear for higher costs and a shake-out of small stores (e.g., IFO, 1995). In this discussion not only the economic effects, but also some more moral aspects about Sunday trading play an important role. The aim of this contribution, however, is focused on economic aspects. This paper tries to shed some light on the (empirical) models, which try to explain the economic effects of deregulation of shop opening hours. By using the insights of the existing literature, a simulation of the economic effects of recent shop opening hours deregulation in the Netherlands is given. This approach can be extended to other countries as well. A partial-equilibrium model of optimal retail behavior for a Dutch retail store, which has been developed by Bode et al. (1987), is extended with shop opening hours as an explanatory variable. Because of regulation, there is no variation of opening hours in the available time series for the Netherlands. However, by assuming that the effects of opening hours on the cost and demand functions are the same as in Sweden, where the effects of full deregulation of shop opening hours were investigated in 1991 by the Civil Department, some of the parameters from Sweden can be used making it possible to derive an indication of the effects of extending opening hours in the Netherlands. We show that the economic effects in terms of sales, employment, and prices can be substantial, because extending opening hours will increase sales, as people have more facilities to buy, and will increase labor productivity. In Sect. 2, we discuss the literature on economic effects of shop opening hours legislation. In Sect. 3, we present a retail model, which describes the effects of extending the number of opening hours. In Sect. 4, we consider the macroeffects of deregulation of shop opening. The focus of that section is on translating microresearch on shop opening regulation into macroeconomic variables such as employment,
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consumer prices, and output. In Sect. 5 a rule for optimal opening hours is calculated and the welfare effects are discussed. In Sect. 6 we conclude the paper.
2 The Economic Effects of Extending Shop Opening Hours In the literature some papers have appeared to describe the economic effects of shop opening hours legislation. Nooteboom (1983) argues that lifting shop opening hours restrictions implies cost increases and a decline in the number of small food shops. Every store has a "threshold" labor volume, which should be present no matter the sales volume. By assuming that threshold labor depends on the number of opening hours Nooteboom shows that the critical sales size of a store (i.e., the size where profit is positive) has to increase if the number of shop opening hours increases. Thurik (1984) finds by using French data that extending the number of opening hours can increase labor productivity and therefore the cost increase of threshold labor can be offset. An explanation for this increase in labor productivity is that given sales peaks are flattened out over the day. De Meza (1984), who discusses the case of Sunday opening, uses a spatial circular road model. Shops can ask higher prices than marginal costs, because travel costs have to be taken into account and consumers who live close to a shop cannot easily be enticed away by competing shops. He pointed out that there are ambiguous welfare effects. If there are relatively high fixed costs for Sunday opening, it follows that an overall efficiency loss may result. A similar approach has been taken by Morrison and Newman (1983). They presented a spatial model, where the price of a good has two components: the price itself and the costs of accessing time spent by the consumer to purchase this good. A small store has higher prices but lower accessing costs, so consumers choose the small store for small purchases. Lifting shop opening hours regulation has the effect of lowering access costs. Morrison and Newman argue that the volume of sales shall increase at large stores and decrease at small stores, if opening hours are extended. Tanguay et al. (1995) show that a price increase can be predicted, because the shift towards large stores increases the market power of this group and thereby prices. The empirical evidence of the deregulation of Quebec's shop opening hours restrictions is basically in agreement with the model. However, this evidence is rather weak, because only short-term effects are investigated. In an article by Kay and Morris (1987), a monopolistic competition equilibrium is given from which the number of open shops on
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Sunday can be obtained. The authors show that competitive pressures may induce excessive opening on Sunday, when high costs would be incurred. Empirical evidence in the UK shows, however, that this case does not arise in practice and that deregulation of shop opening hours would lead to lower costs and prices. An imperfect information equilibrium has been investigated by Clemenz (1993). Consumers have imperfect information about retail prices and they search for the cheapest shop. However, because searching is costly only a limited number of shops are examined. From this equilibrium it follows that deregulation of shop opening can lead to lower prices because consumers have more opportunity to search. In a recent contribution, Clemenz (1994) combines a spatial competition model with an empirically justified cost function, which allows for (conventional) cost of production, threshold (or operating) costs of shopping hours, and capacity costs. In the paper, the socially optimal opening hours are compared with those of a pure monopolist and of a competitive equilibrium. Clemenz shows that a pure monopolist keeps his shop open longer than socially optimal. Under perfect competition the equilibrium is not unique, and shopping hours may differ from the social optimum. The existing, mainly theoretical, literature about the economic effects of extending shop opening hours is rather mixed and ambiguous. For understanding the economic effects it is necessary to rely upon an empirical approach. In the next section, a simple but often used model for a retail store is described. Later, this model is extended with shop opening hours as an explanatory variable.
3 A Model for Retail Behavior
In this section a model for retail behavior is described. We start with a model of optimal behavior for a Dutch retail store, which has been developed by Bode et al. (1987). A similar model with quantity rationing has been published in Bode et al. (1990). It is assumed that the store acts as a (local) monopoly faced with increasing returns to scale. The (annual) quantity demanded, Q, of a retail store is a decreasing function of the selling price, p, and exogenous factors, X d, Q = f ( X d ) e -op .
(1)
In the Bode, Koerts, and Thurik (BKT)-model X d consists of annual advertising costs, type of store, total selling area, and a dummy, indicating whether a store is located in a shopping centre.
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It is assumed that the labor volume is flexible to the extent that it is determined by the actual sales volume plus the threshold labor volume. Therefore, the following relationship is taken for labor: (2)
L = A + b(X I)Q ,
in which L is the annual labor demand (in hours), A the annual threshold labor (in hours), and b ( X I) the labor intensity (i.e., the extra volume of labor per extra unit of sales), which depends on exogenous factors. In the BKT-model X l consists of the wage rate of personnel employed, the share of own labor, and the assortment. Given profit-maximizing behavior of the retail store, an optimal price function be derived from the demand and cost function 1 p = 1K + - + w b ( X l) , 17
(3)
in which w is the wage rate (in hours) and I K the purchase price. So, the optimal retail price is equal to the purchase price, the monopoly rent, and the variable labor costs. Bode et al. (1987) assume without loss of generality that the purchase price equals one for all observations. Using Eqs. (1)-(3) and a data set consisting of 214 supermarkets they arrive at the following estimates for the parameters of their model (see Table 1). For an average retail store with yearly sales of 2.17 million Dutch guilders, 80% of the product price are the purchase price, 10% the monopoly rent, and 10% the variable labor costs. The fixed (labor) costs are 2% of sales, so that gross profits are 8% of sales. Given the assumption of a purchase price of 1, the product price equals 1.25. The price elasticity of demand EQp, which according to Eq. (1) equals - q p , is -9.7. 16% of the labor volume are threshold labor. We now turfi to the point of how to modify the BKT model in order to estimate the effects of deregulation-of-shop-opening-hours legislaTable 1: Estimates from the Bode, Koerts, and Thurik model Parameter
Estimate
A (threshold labor) (price effects) b (labor intensity) a
3020 7.75 0.09
Standard deviation 3.83 0.24 0.012
a Average of labor intensity for the sample
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tion by including the number of opening hours as an explanatory variable. Varying the number of opening hours has actually two effects on the cost function. If the number of opening hours is extended, the threshold labor volume, which is the minimum capacity that must be present during opening hours, increases independently of the amount of sales (cf. Nooteboom, 1983). Next we consider the amount of flexible labor in a shop. The number of opening hours influences the labor intensity. According to Thurik (1984), an extension of opening hours implies a decrease of labor intensity (i.e., an increase of labor productivity). 1 The explanation is that longer shopping hours lead to a more even distribution of customers which allows the shop to operate at a lower capacity level (e.g., number of cash points, storage facilities, etc.). To investigate how extending opening hours influences labor productivity and threshold labor, the following specification has been taken: L = 52dh + h~
,
(4)
where h is the shop's own opening hours (in a week) and d the threshold labor divided by opening hours, d should be approximately equal to the separately staffed departments in the shop. For most food stores d is close to one. Similar to the BKT model the following price equation can be derived: 1 p = IK + - + wb(Xl)h ~ . (5) As pointed out in the existing literature for understanding the effects of extending shop opening hours, it is important to rely upon allocation of time models (cf. Becker, 1965). In these models not only the consumed item is taken into account, but also the foregone value of time used up. Furthermore, it is presumed that the cost of time varies at different periods during the day. Extending shopping hours has the effects of lowering the value of time used by allowing shoppers to choose a more "convenient" time (cf. Morrison and Newman, 1983, p. 110). Because the overall price (i.e., price itself and accessing costs) decreases, more retail goods will be consumed. According to Ferris (1991) we assume that the number of the competitor's opening hours is an important strategic variable and therefore has to be included in 1 For the m a g a s i n s p o p u l a i r e s and the supermarkets, Thurik finds a significant positive relation between labor productivity and opening hours. For the hypermarkets, Thurik finds a negative nonsignificant relation between labor productivity and opening hours.
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the demand function. 2 These features can be captured in the following demand function. The (annual) quantity demanded, Q, of a retail store is related positively to the actual number of opening hours of a store and negatively to the actual opening hours of the competitors O = h~176
(6)
,
where hc is the opening hours of the competitors (in a week). However, it is not possible to estimate the model (4)-(6) for Dutch data. Current policy measures are of very recent date and especially for the capacity effect we need a longer time series. Therefore, we have to rely on studies from abroad. In 1991, a Swedish study about the effects of deregulation-of-shopopening legislation was published (Civil Department, 1991). Since 1972 opening hours for all stores are unrestricted. The study contains a comparison between average opening hours in different store types in 1974 and 1989. For the average retail store, the number of opening hours has been extended by ten hours and for the so-called hypermarkets the number of opening hours has been extended by six hours. In the Swedish study, Eqs. (4)-(6) have been estimated using a data set for 128 Swedish retail stores. The results for the parameters, which depend on the number of opening hours, are given in Table 2. The parameter op, which can be interpreted as the elasticity of labor intensity with respect to the number of opening hours, has a significant negative value. For the demand function a significant effect of extending opening hours is found, if the number of opening hours of the competitors is fixed. Extending the number of opening hours will increase sales, because people have more opportunity to buy. ff the competitors are extending their opening hours given fixed opening hours a (nonsignificant) negative effect for demand is found. Note that if every shop Table 2: Estimates from the Swedish model Parameter
Estimate
d (threshold labor) op (cost effect of h) oq (demand effect of h) ocq (demand effect of hc)
0.84 -0.37 0.95 -0.90
Standard deviation 0.095 0.11 0.23 0.71
2 It is also possible to include the competitor's price as a strategic variable. For reasons of analytical tractability this is not taken into account.
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extends opening hours by the same increment of 1% (i.e., a half hour) the increase in demand is 0.05%. By assuming that the effects of the number of opening hours on the cost and demand functions are the same as in Sweden, the parameters op, oc, and o c q from Sweden can be used to derive an indication of the effects of extending opening hours in the Netherlands. A combination of the BKT model and the Swedish model gives Q = Clh~176
L = 52ah + c2h~
1
(7)
-~p ,
p = 1 + - + ceh~
, l) ,
(8) (9)
77 where the constants a, Cl, and c2 are chosen in such a way, that for the average number of opening hours in the Dutch sample, the original model (1)-(3) reappears. The actual number of opening hours is 51 hours in a week. It is now possible to do a simulation. Let us assume that a retail store extends its opening hours by one hour. The effects on sales, labor, and prices can be traced by substituting this amount into Eqs. (7)-(9). It follows that the product price goes down by 0.068%, sales go up by 2.5%, and labor goes up by 1.8% for an average retail store. Labor productivity rises by 0.7%. This labor productivity effect can, however, be different for different types of stores. For a small-scale retail store there can be an efficiency loss (see Fig. 1). The efficiency gain due to the variable labor costs in that case cannot offset the efficiency loss due to higher threshold labor. For a large-scale retail store we have the reverse.
4 The Macroeffects of Deregulation In this section, we focus on the macroeffects of shop-opening deregulation. Let us assume that a representative firm can be described by using the model of Sect. 3. In this case, the elasticities necessary to calculate the economic effects in terms of labor intensity, prices, sales, and employment for the retail sector, can be obtained from Eqs. (7)-(9). In Eqs. (10ad) these elasticities are given: Eah = op , tool Eph = --Eoeh
P
(10a) ,
(10b)
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L
i
ah' ah[ LI
loss
gain Q
Fig. 1: Labor demand function to different numbers of shop opening hours (h' > h) (10c)
EQh = oq -t- EQpEph ,
ELh = ( l _ ah ah + ( l _ L ah- ) e ~ ~ - ) E Q h + -i-
'
(10d)
where o--0= oc + ocq and ot is the labor intensity. According to Eq. (8), labor intensity equals c2h~ According to Eq. (10a) using the parameter estimates from Sweden, labor productivity decreases by 0.37% if the number of opening hours extends by 1%. Because variable labor costs are 10% of the price of a retail product, prices decrease by 0.037%. Under the assumption that actual opening hours in Netherlands will be extended similarly to those in Sweden, i.e., ten hours, prices decrease by 0.74% (cf. Kremers et al., 1994). In the Netherlands, there has been a discussion about the size of this effect. A study by CPB (1995) argues that these effects are too high, because the retail structure in Sweden is different from the retail sector in the Netherlands. They argue that the Netherlands, and also Belgium, has relatively more small retail stores than Sweden. It should be noticed that the sample in Sweden only contains food stores. It is reasonable to assume that in the nonfood sector the capacity effect and thereby the price decrease is smaller. A study by EIM (1994) argues that there is no gain in nonfood labor productivity, if opening hours are extended (i.e., opt,w = 0). Under this condition, the overall retail price level decreases by 0.3%. The sales effects can be calculated from Eq. (10c). Two factors play a role. First, there is the so-called autonomous sales elasticity (i.e., the sales effect of 1% extra opening hours, if prices are constant). From
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the Swedish study it follows that the autonomous sales elasticity is 0.05. In the study by EIM (1994) these elasticities are higher. 3 Second, there is the sales effect of lower prices. The price elasticity of Bode et al. (1987) is not adequate, because it ignores aggregation issues. It is assumed that for food the price elasticity is 1/2 and for nonfood the price elasticity is 1 (cf. CPB, 1995). Using the price elasticity of Eq. (10b), it follows that the sales elasticity for food is 0.07 and for nonfood 0.05. Under the assumption that actual opening hours in the Netherlands will be extended similarly to those in Sweden, overall retail sales increase by 1.2%. Equation (10d) gives an interesting relation for the labor elasticity. To understand this relation one should distinguish three counteracting factors: a. The sales effect: for the amount of variable labor an increase in sales will correspond with an increase in labor. This effect will be positive. b. The threshold labor effect: an increase in the number of opening hours will correspond with an increase in (fixed) labor. This effect will be positive as well. c. The labor productivity effect: if the number of opening hours is extended, labor productivity will increase. Therefore, for the amount of variable labor an increase in labor productivity will correspond with a decrease in labor. This effect will be negative. So, no prior information is available for the effect on labor. Using the previous elasticities and the study by Bode et al. (1987), we find that the labor elasticity for food will be - 0 . 0 8 and for nonfood 0.21. An increase in the number of opening hours by ten hours then implies an extra amount of labor for the Dutch retail sector of 1.6% or 10,000 jobs. It should be noticed that the IFO study (1995) gives almost the same result (2-3 per cent more turnover and 1.5 per cent more jobs), although it is not clear which model has been used. A crucial variable is the amount of threshold labor. The CPB study argues that for a retail store the threshold labor has become substantially higher because nowadays there are different departments in one store. The employment effect will be higher in that case. 3 The EIM study distinguishes between four sectors (food, clothes, durable goods, and remaining retail). Furthermore, two scenarios have been investigated by the ElM. In the first scenario it is assumed" that total retail demand stays constant. In the second scenario it is assumed that b-q1 = 0.27, o-~2 = 0.45, ~q3 = 0.42, b-04 = 0.27 (1 = food, 2 = clothes, 3 = durables, and 4 = remaining retail).
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For the total effect, the extra number of opening hours is important. Let us compare three Dutch studies of economic effects of shop opening deregulation. Kremers et al. (1994) assume, based on the experience in Sweden, that there will be ten extra opening hours. EIM (1994) argues that on average, there will be an increase of 0.75 hours. Moreover, CPB (1995) argues that average opening hours will increase by five hours. Kremers et al. (1994) calculate an increase in employed persons of 7,000, the CPB calculates 15,000, and the EIM - depending on the scenario - between minus 7,000 (first) and 1,000 (second). In the first scenario there will be employment loss, because the autonomous sales effects are zero. Therefore, the more interesting EIM scenario is the second one. A crucial variable for the results is the size of the extension of opening hours. In Sect. 5 a rule for optimal opening hours will be derived. In this section, we have described the macroeffects using a partialequilibrium model for a Dutch retail store, which has been developed by Bode et al. (1987). This model has been extended to include shop opening hours as an explanatory variable using parameters of a Swedish study about deregulation of shop opening. The following conclusions can be drawn. Deregulation of shop opening hours implies an increase of labor productivity and, therefore, a price decrease. Furthermore, an increase in retail sales is suggested, because people have more ability to buy. The model is more mixed about employment effects. Empirical evidence from Sweden and the Netherlands seems positive mainly because of an increase in threshold labor.
5 Optimal Opening Hours Given the retail model in the previous section, where we have extended the BKT model with opening time, it is possible to derive a rule for optimal opening hours. Given the profit function: W = pQ(h,
p;...)
-
(wot(h;...)
+IK)Q(h,
p;...)
-
wah - CF,
(11) where CF is the fixed costs, and taking the first derivative of the profit function with respect to opening hours, which is equal to zero, gives
(p-
dQ
dot
IK)-d~ - wQ-~
dQ - wot-d-~ - w a = 0
(12)
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The first term gives the extra net returns (minus the purchase price) due to a marginal unit of opening hours. In the second and the third part of this equation the marginal variable labor costs are given. The second part is negative, because of increasing labor productivity due to a marginal extension of the opening hours. The third part is positive and gives the extra variable labor costs caused by increased sales. In the last part, we have fixed labor costs. The threshold labor volume will increase due to a marginal extension of opening hours. Multiplying Eq. (12) by h / Q and using the rules for fixed elasticities we get
(p - IK - wb(Xl)c2h~
- wb(Xl)c2h~
wah _ 0 . Q
(13)
In the first term the extra net revenues (after subtracting the variable labor costs and purchase price and multiplying by h / Q ) due to a marginal increase of the opening hours are given. The second term gives the effect on labor intensity multiplied by the labor costs. It should be noticed that this effect is negative (op < 0). The third term gives the extra fixed labor costs divided by the amount of sales due to a marginal increase of opening hours. After substituting the demand and the price function in (13) the following equation can be obtained
0 :
wah oqr] -- w b ( X l ) c 2 h ~ 1 7 6 -- clhoqhcOCqe_o(l+l+c2wb(Xi)hOp)~
.
(14)
Equation (14) gives the reaction of a retail store, given the number of opening hours of the competitors. Before we can calculate the optimal number of opening hours, we have to make an assumption about the number of opening hours of the competitors. In the Nash equilibrium, under the assumption that all firms have equal size, h c = h. If the optimal number of opening hours is above the feasible number of opening hours, we set the optimal number equal to the feasible number. Using the parameter for the Netherlands (see Sect. 3), we can derive the optimal number of opening hours for a food store. In the Nash equilibrium, it follows that the number of optimal opening hours is equal to the maximum number of opening hours in a week (168). Another possibility is to derive the collusion equilibrium. In this cooperative equilibrium the sum of the retail store's own and the competitors' profit function is maximized. For reasons of symmetry, again h c = h. Without ~oing into technical details we can derive the optimal
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Table 3: The effects in Dutch guilders of extending opening hours by 1 hour weekly
Extra net revenues Variable labor costs Fixed labor costs Profit
52
62
418 -1384 810 992
364 -1088 810 642
112.95 131 -679 810 0
opening hours from Eq. (15) 0-
o--q T/
wb(Xl)c2hOpo p _
wah Cl h~qe-n(l+ ~+ c z w b ( X l ) h ~
(15) "
From Eq. (15) it can be calculated that the number of optimal opening hours is 112.95. In Table 3 we give the effects of a marginal increase for different numbers of shop opening hours, ff the number of opening hours is 52, the extra revenue (minus purchase) in guilders due to an increase of opening hours by one hour is 418, while variable labor costs decline by 1384. These two (positive) effects strongly offset the extra (marginal) fixed labor costs due to a marginal increase of opening hours. At the optimal number of opening hours of 112.95 the positive effects are precisely equal to the negative effect. An interesting result is that the number of optimal opening hours in the Nash equilibrium is larger than the number of optimal opening hours in the collusion equilibrium. So, in a noncooperative solution stores set their opening hours too long. It is also possible to allow for heterogeneity. For a store with a turnover of one million Dutch guilders the optimal number is 64, for a store with a turnover of ten million Dutch guilders the optimal number is 168 hours per week. Also from this exercise it becomes clear that larger stores have more incentive to increase the number of opening hours. The Nash and collusion equilibrium are illustrated in Figs. 2 and 3. After substituting the price equation, it is possible to derive the cost curves in opening hours only. The equilibria can be found by equating marginal costs (MC) and marginal revenues (in additional hours) (MR). For the Nash equilibrium, the optimal number of opening hours is larger than the maximum number of opening hours in a week (168) (see Fig. 2). The optimal number in the collusion equilibrium is larger than the legal restriction (52), but smaller than the maximum number (see Fig. 3). Profits (or producers' surplus) can be found by multiplying h* and the difference between average revenue (AR) and average costs (AC). Consumers' surplus is the willingness to pay minus what con-
260
R. Gradus consumer surplus producer surplus MR
AC W~
legal
maxi- h* mum
Fig. 2: The Nash equilibrium
consumer surplus producer surplus
AR AC MC Wgl
MR
legal
h*
Fig. 3: The collusion equilibrium
Extending Shop Opening Hours
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sumers actually pay for the optimal opening time. From a welfare point of view one can verify that the unrestricted equilibrium is better than the restricted equilibrium, as both consumer and producer surpluses are higher. No general statements can be made comparing the Nash and collusion equilibria. In the Nash equilibrium the producer surplus is lower, but consumer surplus is higher and in the collusion equilibrium this is other way round. 4 These ambiguous welfare effects are similar to those described by Clemenz (1994). Of course, this optimal opening-hours rule has been derived under several assumptions. One important assumption is that the efficiency gain for variable labor is also available for a large extension of the number of opening hours (or, in other words, it is assumed that the parameter op is a constant). There is, however, some evidence that in such a case op will become smaller. To show the importance of the parameter op for the derived results, let us assume that op is -0.21. In that case, the optimal number of opening hours is 51, which equals the actual average number of opening hours in the Netherlands.
6 Conclusions
In this paper, we describe the economic effects of deregulation of shop opening legislation. The theoretical literature regarding these effects is rather mixed. Some models, like the spatial-equilibrium models predict price increases, whereas the imperfect-information equilibrium models predict price decreases. Therefore, it is important to look at the empirical evidence. However, empirical evidence is scarce, because most policy experiments in Western Europe are from recent data and the effects take place in the long run. An exception is Sweden, where full deregulation of shop opening legislation took place in 1972. A study by the Civil Department (1991) contains information about the time before and after deregulation. It is shown that deregulation implies a price decrease and an increase in retail sales. Moreover, the effect on labor depends on the summation of counteracting forces. In this paper a partial-equilibrium model for a retail store is combined with the parameters in Sweden and an estimate of the effects in the Netherlands is given. For this experiment, it is shown that the overall effect on labor will be positive. The magnitude, however, depends crucially on the number of extra opening hours. Results in Sect. 5, where a rule for 4 For the parameter estimates given in Sect. 3 one can check that the sum of consumer and producer surplus is higher in the Nash equilibrium than in the collusion equilibrium.
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the optimal opening hours is derived, show that the potential for this magnitude is high. An interesting result is that the number of optimal opening hours from the Nash equilibrium is larger than the optimal number of opening hours from the collusion equilibrium. In future work, there are many avenues to explore. First, it is important to have more insights into the difference between the retail sector in different Europear~ countries and Sweden. In that way, we can judge whether the suggested efficiency gain will also take place in the Netherlands. Second, in the Swedish model the number of opening hours is an explanatory variable. It is, however, more reasonable to assume that the flexibility gain depends on day and time. In countries with liberalized opening hours small retail stores are successful in moving their opening hours from the day to the evening. However, such a feature cannot be captured by the model. Third, game-theoretic issues can be involved. An important extension should be a Stackelberg equilibrium with the large-scale retail store as the leader. Fourth, it is important to allow for exit or entry and thereby get more insights in the consequences for the structure of the retail sector. Despite the shortcomings of the approach in this paper, there seems to be evidence that lifting existing restrictions is economically profitable.
Acknowledgements
The author likes to thank one anonymous referee, Peter van Bergeijk, Jeroen Kremers, and Tjerk Kroes for stimulating suggestions, and Rudi Pieters and Suzanne Bijl for technical assistance. The views in the paper are the author's own.
References
-
Becker, G. S. (1965): "A Theory of the Allocation of Time." Economic Journal 75: 493-517. Bode, B., Koerts, J., and Thurik, A.R. (1987): "A Simultaneous Model for Retail Pricing and the Influence of Advertising and Assortment Composition on Demand." Research report 8718/A, Econometric Institute, Erasmus University Rotterdam. (1990): "Market Disequilibria and Their Influence on Small Retail Store Prices." Small Business Economics 2: 45-57. Clemenz, G. (1990): "Non-sequential Consumer Search and the Consequences of Deregulation of Trading Hours." European Economic Review 34: 13231338. -
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Address of author: Raymond Gradus, Financial and Economic Policy Directorate, Ministry of Finance, Postbox 20201, 2500 EE The Hague, The Netherlands.
