Firm Scope and the Value of One-Stop Shopping in Washington State’s Deregulated Liquor Market

Firm scope benefits consumers by allowing them to purchase multiple goods at one location like supercenters, malls, or department stores. This paper quantifies the consumer benefit of introducing one-stop shopping as a new shopping choice, and in turn, estimates the benefit to firms. I exploit an exogenous change in the allowable firm scope in Washington State, which recently deregulated the retail liquor industry to allow liquor sales in grocery stores. After deregulation, the number of liquor-selling stores is increased fourfold, and 75% of the liquor shopping has been done by one-stop shopping with groceries. Moreover, the liquor quantity sold has increased despite the increased after-tax price of liquor, implying that the choice set of shopping trips has improved. To disentangle the value of one-stop shopping from the value of reduced shopping distance due to more liquor-selling stores, I build a structural demand model of choices for shopping trips. I use household panel and retailer sales data from both before and after deregulation and extend the standard method to allow for endogenous prices to the setting where a store can have two separate qualities of grocery and liquor sections. The estimated consumer benefit of one-stop shopping is $2.52 per trip per household, which is 8% of the household’s expenditure on liquor. Selling liquor inside of a grocery store increases its grocery sales by 4.5%, and liquor sales are increased by 30% compared to being sold outside of the grocery store. ∗University of Minnesota, [email protected]. For the latest version check my website: https://sites. google.com/a/umn.edu/boyoung-seo. I am greatly indebted to Amil Petrin, Thomas J. Holmes, Joel Waldfogel, and Naoki Aizawa for advice. I thank Melissa Norton at the Washington State Liquor and Cannabis Board for providing data. This research was supported by the University of Minnesota Doctoral Dissertation Fellowship.