TY - JOUR
T1 - Opening the OTC drug market
T2 - The effect of deregulation on retail pharmacy's performance
AU - Jo, Wooyong
AU - Nam, Hyoryung
AU - Choi, Jeonghye
N1 - Publisher Copyright:
© 2021 Elsevier B.V.
PY - 2022/9
Y1 - 2022/9
N2 - Governments in many countries have deregulated the retail pharmacy market to offer easier and broader access to pharmacy services. Such deregulation has spurred the competition by allowing the entry of new drug distribution channels. Current research leverages the Pharmaceutical Affairs Law revision introduced in South Korea in November 2012. The policy change allowed 24-hour convenience stores to sell 13 first-aid drugs directly to patients. This research investigates the causal effect of new retailers’ entry on incumbent pharmacies’ financial performance in terms of pricing, revenue, and market exit. The findings, based on the panel data of 2,795 pharmacies in a 36-month period from 2011 to 2013, suggest deregulation posed a significant competitive threat to incumbent pharmacies, resulting in lower average prices for the deregulated drugs, significant drops in revenue and accelerated financial failures. A significant heterogeneity in the treatment effect is found across pharmacies. Pharmacies with less loyal customers and poorer financial performance suffered more after deregulation. Our findings suggest that although such deregulation is intended to enhance consumers’ access to health care, opening the OTC drug market to new retailers may hamper consumers’ access to pharmacy services because of the exit from the market of underperforming incumbents.
AB - Governments in many countries have deregulated the retail pharmacy market to offer easier and broader access to pharmacy services. Such deregulation has spurred the competition by allowing the entry of new drug distribution channels. Current research leverages the Pharmaceutical Affairs Law revision introduced in South Korea in November 2012. The policy change allowed 24-hour convenience stores to sell 13 first-aid drugs directly to patients. This research investigates the causal effect of new retailers’ entry on incumbent pharmacies’ financial performance in terms of pricing, revenue, and market exit. The findings, based on the panel data of 2,795 pharmacies in a 36-month period from 2011 to 2013, suggest deregulation posed a significant competitive threat to incumbent pharmacies, resulting in lower average prices for the deregulated drugs, significant drops in revenue and accelerated financial failures. A significant heterogeneity in the treatment effect is found across pharmacies. Pharmacies with less loyal customers and poorer financial performance suffered more after deregulation. Our findings suggest that although such deregulation is intended to enhance consumers’ access to health care, opening the OTC drug market to new retailers may hamper consumers’ access to pharmacy services because of the exit from the market of underperforming incumbents.
KW - Control function
KW - Endogeneity
KW - Market competition
KW - Market deregulation
KW - Market entry
KW - Pharmaceutical marketing
KW - Public policy and marketing interface
UR - http://www.scopus.com/inward/record.url?scp=85119431630&partnerID=8YFLogxK
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U2 - 10.1016/j.ijresmar.2021.10.001
DO - 10.1016/j.ijresmar.2021.10.001
M3 - Article
AN - SCOPUS:85119431630
SN - 0167-8116
VL - 39
SP - 847
EP - 866
JO - International Journal of Research in Marketing
JF - International Journal of Research in Marketing
IS - 3
ER -