Why Shops Close Again: An Evolutionary Perspective on the Deregulation of Shopping Hours

Abstract

This paper introduces a new perspective on the deregulation of shopping hours based on ideas from evolutionary game theory. We study a retail economy where shopping hours have been deregulated recently. It is argued that first, the deregulation leads to a coordination problem between store owners and customers, and second, the ?solution' to this problem depends on the specific cost structure of stores and the preferences of customers. In particular, it may happen that, even if extended shopping hours are Pareto efficient, stores and customers do not succeed in coordinating on this equilibrium. The analysis explains the observation in Germany, where shopping hours have been deregulated recently, that store owners tend to go back to the former shopping hours again. Moreover, it emphasizes the important role of advertisement campaigns as a signalling device.

Supply chain disruption management and evolutionarily stable strategies of retailers in the quantity-setting duopoly situation with homogeneous goods

“…On the evolutionary management of a supply chain, Kosfeld (2002) argued that the ÔsolutionÕ to the coordination problem between stores and customers depends on the specific cost structure of stores and the preferences of customers. In his model, the demand is deterministic.…”

Ordered bargaining

“…28 Suppliers may also lobby for restrictive hours-of-service regulation. For analyses of such rules and their deregulation, see Ferris (1990), Kosfeld (2002) and Inderst and Irmen (2005). 29 The analysis is of course symmetric for buyers.…”

Shopping Hours and Entry - an Empirical Analysis of Aldi’s Opening Hours

“…Based on evolutionary game theory, Kosfeld (2002) analyzes the empirically observed phenomenon that German retailers reduced their shopping hours again after extending them shortly after the law allowed them to. After the first deregulation of shopping hours in Germany in 1996 about 60 % of the shops expanded their opening hours.…”

“…However, one year later, some 10 %-points of total retailers reduced the opening hours again. Kosfeld (2002) interprets this observation as a result of the consumers' and retailers' failure to coordinate on a potentially efficient equilibrium. It is costly for retailers to expand shopping hours and at the same time consumers face uncertainty: if they decide to shop later they will not know for sure whether the store is indeed open.…”

“…The findings about consumer learning can be interpreted from the viewpoint of evolutionary game theory as proposed by Kosfeld (2002). In those areas where coordination between consumers and discounters was successful, extending shopping hours of an additional Aldi store is more likely to be profitable.…”