Michael Burda - Sciences Po Spire

3.3 Final good prices
Technically, the effect of blue laws on prices is ambiguous. Under assumption
A2, stricter blue laws tend to raise the price of final output by increasing
hM/hR, from (6). The economic intuition is that increased intensity of the
intermediate (inventory or raw input per hour worked in retail) must reduce
its equilibrium value marginal product, which is 1/p and can fall only if
bp >0.At the same time, a restriction of hours worked ( ˆ hR < 0) increases
equilibrium retail productivity via the congestion externality and thus tends
to lower retail prices. Combining (6) and (10), the former effect dominates
if and only if the Marshallian externality is sufficiently weak:
γ <
1 − α
Q (11)
σ
where Q is defined in A2. Under A2, Q ≤ 0, so this condition will never
obtain and the Marshallian effects always dominates, i.e. blue laws tend to
reduce the price of output in the retail sector. Naturally, if µ M = µ R there
are no effects on prices, since employment in both sectors is independent of
the blue law. 13
3.4 Final output
Stützel (see Stützel 1958, 1970) asserted that retail opening hours regulations
do not have first-order effects on the real demand for final goods, because
consumers respond to restrictions on shopping hours by simply concentrating
the purchases in a shorter time interval. This argument is frequently
advanced by trade unions and small shop owners to resist liberalization of
shopping hours regulations. We now show that ”Stützel’s Paradox” does not
in general hold in our model. In point of fact, blue laws lower retail output
unless the retail productivity externality is very strong.
From the retail production function (4) and the definition of the retail
labor share α, wefind that
Ĉ =(1− γ) ˆ hR + α( ˆ hM − ˆ hR).
13 It is interesting to note that recent surveys in Germany, Switzerland and Italy have
revealed fears among consumers that deregulation of the currently severe shop closing
regimes (by US standards) would lead to price increases, which is consistent with nonzero
µ i and the existence of a strong negative retailer externality. See Ifo-Institut (1995, 2000).
12