Free Entry and Social Inefficiency in Regulated Pharmacy Markets

Antto Jokelainen, Jaakko Markkanen, Leppälä, Samuli, Markku Siikanen, Sipiläinen, Matti and Otto Toivanen

No 20095, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study entry deregulation in the Finnish pharmacy market where prices, markups, and the number and location of pharmacies are regulated. The number of pharmacies increases substantially with free entry, particularly in urban areas. Although almost all consumers benefit, rural areas and areas with older populations benefit less. The increase in aggregate consumer surplus is dominated by decreases in pharmacy profits and government tax revenue; thus, free entry turns is socially excessive. The prevailing entry restrictions may thus work reasonably well from a total welfare perspective, but with distributional consequences: Incumbent pharmacists benefit at the expense of customers.

Keywords: Entry regulation; Deregulation; Pharmacies; Pharmaceuticals; Welfare (search for similar items in EconPapers)
JEL-codes: L43 L81 R12 (search for similar items in EconPapers)
Date: 2025-04
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