Price Competition and Business Hours ∗

We analyze differentiated retail industries where shops engage in two-stage competition with respect to opening hours and prices. We demonstrate that retailers with longer opening hours charge higher prices and that opening hour differentiation softens price competition in a way described by a convex function of the proportion of the time that one of the stores is the sole operator. We calculate both symmetric and asymmetric subgame perfect equilibria in closing hours and demonstrate how the equilibrium configurations depend on the cost increases associated with extended business hours. Finally, we explore the welfare implications of opening hours competition.