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

34 Pages Posted: 20 Apr 2020 Last revised: 27 Apr 2022

See all articles by Gaston Illanes

Gaston Illanes

Northwestern University

Sarah Moshary

University of Chicago - Booth School of Business

Date Written: April 2020

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.

Suggested Citation

Illanes, Gaston and Moshary, Sarah, Market Structure and Product Assortment: Evidence from a Natural Experiment in Liquor Licensure (April 2020). NBER Working Paper No. w27016, Available at SSRN: https://ssrn.com/abstract=3580574

Gaston Illanes (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Sarah Moshary

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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