Entry and regulation: evidence from health care professions |
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Authors: | Catherine Schaumans Frank Verboven |
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Institution: | 1. Center and TILEC, Tilburg University;2. catherine.schaumans@uvt.nl.;3. K.U. Leuven and CEPR;4. frank.verboven@econ.kuleuven.be. |
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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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