Entry and Regulation: Evidence from Health Care Professions.RAND

The health care professions have been subject to substantial entry and conduct regulation. Most notably, pharmacies frequently receive high regulated markups over wholesale costs, and are protected from additional competition through geographic entry restrictions. We develop an entry model to study the direct impact of the reg-ulations on the pharmacies, and the indirect impact on the physicians who provide related services. We study the case of Belgium, which is representative for many other European countries with geographic entry restrictions. We \u85nd that the entry deci-sions of pharmacies and physicians are strategic complements. Furthermore, the entry restrictions have directly reduced the number of pharmacies by more than 50%, and indirectly reduced the number of physicians by about 7%. A policy analysis shows that a removal of the entry restrictions, combined with a large reduction in the regu-lated markups (by between 1018%, down from the current 28%) would lead to a large shift in rents to consumers, without reducing the geographic coverage of pharmacies throughout the country. These \u85ndings show that the public interest motivation for the current regime has no empirical support. Our \u85ndings are also relevant in light of the renewed attention by competition authorities to liberalize professional regulation