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Estimating the Effects of Deregulation in the Ontario Wine Retail Market

Daniel Ershov, Victor Aguirregabiria, Junichi Suzuki. 2016. Resting paper.

Abstract

This paper studies the impact of competition in the Ontario wine market and evaluates alternative deregulation policies. Ontario's wine retail market combines the government-owned Liquor Control Board of Ontario and two private companies that can sell only a limited subset of Ontario wines and face restrictions on store numbers. The empirical analysis estimates a spatial demand model for differentiated products using LCBO store sales, prices, and product characteristics, then simulates deregulation proposals including retail competition, broader product ranges for private retailers, and price competition.

Main Finding

Relative to a pure monopoly benchmark, entry by additional competitors increases consumption and consumer welfare; expanding existing competitors' product range also raises welfare while keeping consumption stable.

Policy Relevance

Retail deregulation can affect consumer welfare through entry, assortment, and price competition, and these margins need to be evaluated separately.