No. 27




Free Competition versus Regulation – the Example of Pharmacy Establishment Restrictions

19 June 2013


RiTo No. 27, 2013

While promoting free competition is inarguably an important tool for ensuring the effective functioning of markets, state regulations may sometimes still be justified and necessary due to market failures. Thus, it is essential to strike an appropriate balance between free competition and regulations. Such balance depends largely on the overall purpose the competition or the regulations are meant to achieve.

The article provides a short overview of the economic reasons that give rise to the need of regulating certain areas of activity, as well as an explanation of the role of free competition within the context of functioning and regulating of markets. This is followed by a discussion concerning the pharmacy establishment restrictions that are currently subject to a lot of controversy and provide a good example for illustrating the issue of striking a proper balance between free competition and regulations.

As an integral element of the state welfare system, the pharmaceutical sector is a sensitive area of activity that, when subjected to free competition, may not function in the same way as the more classical areas of activity. For that reason, the pharmaceutical sector is regulated in terms of prices, assortment, qualifications of staff as well as other parameters, which strongly influences the functioning of competition in that area. Hence, repealing merely the pharmacy establishment restriction does not open the pharmacy market to free competition. Furthermore, the deregulatory experience of other countries makes it evident that any regulation or deregulation activities must be preceded by careful and in-depth deliberations, which encompass clearly defining the aims to be achieved, considering alternative measures, and assessing the effects of the actions planned.

Full article in Estonian