DP20095 Free Entry and Social Inefficiency in Regulated Pharmacy Markets

• Antto Jokelainen Jaakko Markkanen Samuli Leppälä Markku Siikanen Otto Toivanen Matti Sipiläinen
1 Apr 2025

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.