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Joint Industrial Organization & Public Economics Workshop - Sarah Moshary

Wed, 10/11/2017 - 11:40am

Sarah Moshary

University of Pennsylvania

498 Uris Hall

"What is the Marginal Effect of Entry? Evidence from a Natural Experiment in Liquor Licensure (w/Gaston Illanes)"

We leverage a natural experiment in liquor licensure requirements to estimate the causal effect of entry on prices and sales volumes. When Washington state privatized liquor sales in 2012, it required retailer premises exceed 10,000ft2 in order to sell spirits. We exploit this discontinuity to overcome the endogeneity of entry to local demand conditions and firm unobservables. We find a 27 percentage point jump in entry at the licensure threshold and an 60% decline in entry for independent stores neighboring marginally-eligible potential entrants. While entry does not affect prices for individual products, we find it boosts liquor consumption, with an additional entrant increasing volume by 30% and product variety by 20%. However, these effects are limited to duopoly and triopoly markets, indicating the size-based entry restriction is a blunt instrument for reducing liquor externalities across the State.

Event Categories: Industrial Organization