The Effect of Large-Scale Retailers on Price Level: Evidence from Japanese data for 1977-1992

Since its enactment in 1974 until its easing in the 1990s, the Large-Scale Retail Store Law (<i>Daikibo Kouri Tenpo Ho</i>) strictly regulated the entry of large-scale retailers in cities in Japan to protect local small and medium incumbent stores. This paper investigates the effect of large-scale retailers on the price level in Japan using city-level panel data from 1977 to 1992, the period when the Large-Scale Retail Store Law exercised strong entry restrictions. Using fixed effects estimation and instrumental variable estimation, we find that the presence of large-scale retailers, measured by their floor area relative to that of all of the retailers, has a negative effect on the price index of agricultural products, mass-produced food products, textiles, and durable goods. The estimation results suggest that a 10% increase in the relative floor area of large-scale retailers reduces the price level by around 0.3%-1.3%.