The Impact of Deregulation in the Retail Sector: Implications for the aging society

Author Name UNAYAMA Takashi  (Kobe University) /KEIDA Masayuki  (the University of Tokyo)
Creation Date/NO. September 2008 08-J-047
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In this paper we consider the implications for Japan's aging society and low birth-rate with respect to the enhancement of efficiency in the retail sector. While it is, in general, difficult to measure the productivity of the retail sector, we made it possible, using a deregulation as a natural experiment, to evaluate the impact of the enhancement of efficiency on economic welfare.

The efficiency of the retail sector plays an important role in an aging society from two perspectives. First, there is the perspective of the achievement of innovation. The second perspective is that for elderly people and women in employment, the burden of purchasing behavior itself is heavy, and determines quality of life.

Specifically, in this paper we analyze an aspect of the deregulation implemented in March 1999 that had a particularly large impact, namely the effective liberalization of the sale of medicinal drinks, so as to analyze the effect of the enhancement of the efficiency of the retail sector. As a result of deregulation it became possible for almost all supermarkets to sell medicinal drinks, and their sales volume increased abruptly. We show that, on the other hand, prices did not fall commensurately, and the effects of deregulation impacted consumers through non-price factors.

In addition, the very fact that the number of outlets selling the drinks increased may have made it more convenient for consumers, and so we build a model to decompose the price-lowering effect of deregulation and the non-price effect in the form of the enhancement of convenience. According to our estimations, the deregulation has had an economic welfare improvement effect equivalent to ¥15.1 billion income increase, assessed by using compensating variation. We also find that at least 90% of this effect is not attributable to price-lowering effect but to a non-price factor, namely the enhancement of convenience.

Our study thus demonstrates that the enhancement of the efficiency of the retail sector is an important means of innovation, and that through convenience it has the effect of enhancing the quality of life.