The Rand journal of economics vol:39 issue:4 pages:949-972
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 empirical entry model with two speci.c features: entry by pharmacies may be restricted, and entry decisions of pharmacies and physicians may be strategic complements. We study the case of Belgium, which is representative for many other European countries with geographic entry restrictions. Our estimates imply that the entry restrictions have directly reduced the number of pharmacies by more than 50%, and indirectly reduced the number of physicians by about 7%. Furthermore, a removal of the entry restrictions combined with a reduction in the regulated markups would lead to a large shift in rents to consumers (taxpayers), without necessarily reducing geographic coverage throughout the country. These .ndings show that the public interest motivation for the current regime has no empirical support.