Below‐cost legislation and retail conduct: evidence from the Republic of Ireland Available to Purchase

The interaction between public policy, retail structure and conduct has been well debated but a paucity of empirical evidence exploring the interrelationships exists. This paper examines the impact of one policy measure, retail pricing legislation, on retail conduct. It focuses on the experience of the Republic of Ireland, which has had a ban on below‐cost selling of certain grocery products since 1988. OLS regression of quarterly data on a basket of 13 grocery product categories over the period 1984‐1994 identifies legislation as a key influence on retail conduct and as a significant variable in the explanation of retail gross margins. Evidence is found to support a positive relationship between the prohibition of below‐cost selling and retail gross margins indicating a reduction in price competition within the category. Per capita incomes, retailer concentration and retail advertising are found to be significant but negatively related to retail gross margins.