Deregulating the pharmacy market: the case of Iceland and Norway
Introduction
Pro-competitive policies usually benefit consumers and have therefore come in for increased attention within the public sector in recent decades. Health care is by no means an exception; and reforms intended to introduce competition, first of all across providers, have been discussed at length (and to some extent implemented) in several European countries and elsewhere. Given its dominant position in the global debate, however, there is surprisingly little evidence to document the effects of competition on behaviour and market structure.
The community pharmacy market in many European countries has traditionally been characterised by individually owned firms that operate under tight government control regarding barriers to entry, scope of activities and profit margins. Within the European Union, and with some notable exceptions such as conditions in the UK, ownership has been limited to pharmacists, and the operation of pharmacies in nation-wide chains has not been allowed. In fact, community pharmacies have been organised as a guild in pretty much the same way today as 400 years ago. Traditional market conditions are, however, about to change. Many countries are in the process of introducing pro-competitive policies, including deregulated ownership of pharmacies and competition based on price. Interestingly enough, two non-members of the European Union, Iceland and Norway, have been at the forefront of this development.
In this article, the formation and implementation of pro-competitive policies in the community pharmacy market in Iceland and Norway will be described and compared, as well as the change in competitive behaviour and industrial organisation that followed the implementation of new policies. The main purpose of the study is to identify lessons for the management of similar reforms elsewhere. The study reported here is a follow-up of a previous study, conducted in 2001 [1], which focused on the early developments in Iceland and Norway. Since then, the markets have developed further and several studies from Norway have been published, facilitating comparison and identification of important lessons for future policies.
Section snippets
Formation and implementation of new policies
The introduction of competitive policies in previously regulated markets was a popular policy theme across the Nordic countries in the 1990s. An important argument behind suggestions to deregulate the pharmacy market was the general belief that productivity would increase with such a change, to the benefit of both consumers and the national government. More specifically, plans to introduce competition in the pharmacy market were part of wider ambitions on the part of the government to improve
Competitive behaviour and changes in market structure
There are now several years of experience of the pro-competitive policies introduced in Iceland in 1996. In spite of the fact that the total market is small (290,000 inhabitants, of whom 170,000 live in the Reykjavik area), several studies that describe the early consequences of the new market conditions have appeared in peer-reviewed journals. Pharmacists have carried out most of these studies. In Norway (4.5 million inhabitants, of whom a majority live in the coastal areas), the new policies
Discussion
Pro-competitive policies in both Iceland and Norway had a favourable impact on the distribution of social welfare to consumers in densely populated areas (increased availability of pharmacies and discounts in Iceland) and an unfavourable one on pharmacy chains and pharmaceutical companies (increased costs of improved availability of pharmacies and discounts). The new policies also changed the industrial organisation of the pharmacy market and, more importantly, conditions for the management of
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