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Entry and regulation: evidence from health care professions
Author(s) -
Schaumans Catherine,
Verboven Frank
Publication year - 2008
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2008.00045.x
Subject(s) - economic rent , competition (biology) , barriers to entry , business , empirical evidence , pharmacy , industrial organization , public economics , marketing , economics , microeconomics , market structure , medicine , ecology , philosophy , epistemology , family medicine , biology
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.