Publications

The food distribution and retail sectors in Quebec (and elsewhere in North America and Western Europe) are highly concentrated and integrated as large food distributors are also involved in food retailing. As such, they are competing with small grocery and convenience stores they sell inputs to. A review of the industry suggests that there are important economies of size in distribution, but that smaller stores offering convenience face a more inelastic demand (i.e., their customers are less sensitive to price increases). Concerns over the survival of smaller stores in Quebec have motivated two types of regulations. The first type aims at reducing the cost advantage of dominant retailers by restricting the number of employees that they are allowed to use during specific time periods. Originally, it had been expected that large stores would close instead of imposing long queue lines on their customers.  The second type restricts retail prices by imposing minimum retail prices.
We develop a simple model capturing the main features of the industry to ascertain the impact of these regulations on retail and wholesale prices. Our results suggest that these regulations reduce society's welfare.  In fact, under some conditions, the regulations may induce both tighter margins and lower gains for small retailers.  While the desire to maintain competition is most legitimate, the regulations analyzed are ineffective because of the large distributors' influence on the costs of small retailers.  However, the entry of a new large distributor/retailer like Walmart would make the market more competitive.