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Entry and regulation: evidence from health care professions

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  • Catherine Schaumans
  • Frank Verboven

Abstract

In many countries, pharmacies receive high regulated markups and are protected from competition through geographic entry restrictions. We develop an empirical entry model for pharmacies and physicians with two features: entry restrictions and strategic complementarities. We find that the entry restrictions have directly reduced the number of pharmacies by more than 50%, and also indirectly reduced the number of physicians by about 7%. A removal of the entry restrictions, combined with a reduction in the regulated markups, would generate a large shift in rents to consumers, without reducing the availability of pharmacies. The public interest motivation for the current regime therefore has no empirical support.

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  • Catherine Schaumans & Frank Verboven, 2008. "Entry and regulation: evidence from health care professions," RAND Journal of Economics, RAND Corporation, vol. 39(4), pages 949-972, December.
    • Handle: RePEc:bla:randje:v:39:y:2008:i:4:p:949-972
    DOI: 10.1111/j.1756-2171.2008.00045.x
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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation

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