The Impact of Economic Regulation on Retail Sector: Regulation of Business Hours of Large Discount Stores in South Korea

Abstract

Recently the large discount retailers (LDRs) including large discount chains (e.g., Emart, Homeplus, and Lotte Mart) and super supermarkets (SSMs) have been at the center of disputes in the retail industries in Korea. The 2012 Distribution Industry Development Act has allowed the head of a city or county to regulate the business hours between large mega-retailers and small and family-run stores in the neighborhood. The regulation of the business hours of the large discount retailers may have heterogeneous effects on their sales depending on various contexts of the market situation. The reduction of the business hours assumes a significant negative effect on the amount of sales of LDRs. However, the degree of reduction may significantly differ from how the LDRs respond to the regulation. The reduction of sales of LDRs is natural if LDRs affected by the regulation do not make any effort to promote sales. On the other hand, if LDRs try to maintain their sales with various marketing strategies and resources, their sales may not decrease and even relatively increase compared to the size of the sales for LDRs that are not affected by the regulation. In addition, although the regulation of the business hours for LDRs can reduce operating hours, their sales may increase due to an increase of market demand in some growing places. For instance, the sales in LDRs located at the market place where new large housings and apartments have been growing may increase. The increasing demand derived from the new population growth can cancel out the decrease of the sales from the regulation of the business hours. Our findings, relying on using DID method before and after the regulation, show three different types of the impact of the regulation change on the sale of LDRs across five regions including decreasing, constant, and increasing patterns.