A leisurely drive through the suburban shopping districts of virtually any American city reveals the successful inroads that large mass merchandisers have made into the retail sector in the United States. At the same time, the once-thriving downtown shopping areas of many of these same cities are now rife with boarded-up retail storefronts. Unfortunately, the rise of the corporate retail superstores has come at least in part at the expense of traditional, local, "mom-and-pop" dealers. While shoppers seem to uniformly appreciate the often lower retail prices available at the mass merchandisers, many also rue the loss of personalized customer service previously provided by friendly, local dealers.
In this paper, I examine in detail these retail changes in the United States. Using time series data covering the last 40 years, I first paint an empirical picture of the retail sector, providing numerical evidence of the migration from smaller dealers to fewer, larger retail establishments. With this movement toward mass merchandising, there has indeed been a reduction in the level of point-of-sale information services offered to customers on the retail shop floor. Put simply, the empirical evidence is consistent with the casual, anecdotal story told above.
But what lies behind this transformation of the retail sector in the United States? I posit that an important piece of federal legislation, the Consumer Goods Pricing Act of 1975,(1) which effectively outlawed the manufacturer practice of resale price maintenance (RPM), played a key role in the demise of small, service-oriented retail stores. Briefly, RPM often acts as a device by which manufacturers create property rights in the information services provided by the dealers who carry their products. Preventing manufacturers from utilizing this practice enabled "no-frills," discount, corporate retail mega-stores to free ride off the services offered by higher-service, generally smaller, local retail proprietorships.
I argue that it was this retail free riding problem that, in large measure, led to the demise of the local "mom-and-pop" dealer. More specifically, the data indicate that 1975, the year in which the Consumer Goods Pricing Act eliminated RPM from the manufacturer's arsenal against retail free riding, was a crucial turning point in American retailing.
Recognition of a nexus between the use of RPM and the vitality of the local retail proprietorship injects an important new component into the substantial welfare debate over vertical price restraints. The majority of this debate, whose opposing sides have been eloquently articulated by, for example, Bork [1978; pro-RPM] and Sullivan [1977; anti-RPM], has centered on the impact of RPM on retail prices. My analysis suggests that the reduction or elimination of small, often family-owned retail establishments is an additional social welfare cost of a policy or legal rule making the practice of RPM illegal.
The Retail Sector in the United States over Time
In this section of the paper, I utilize time series data from the past 40 years to generate a series of diagrams illustrating a number of changes in the retail sector in the United States. More specifically, these data provide numerical evidence consistent with the general conception of a movement away from smaller, service-oriented dealers toward larger, discount, warehouse-like mass merchandisers. To begin, Figure 1 depicts the total number of retail establishments in the United States in the years between 1954 and 1992.
Although there does appear to have been a bit of a recovery since 1982, the diagram clearly indicates a substantial retail consolidation beginning some time in the early to middle 1970s. At the same time that the number of retail stores was decreasing, the average real dollar volume of sales per retailer accelerated, indicating the drawing power of the mass merchandisers. Figure 2 shows that per-store retail sales (in constant 1987 dollars) began a more rapid ascent beginning in the middle 1970s.
Specifically, average annual sales per store increased at a rate of...