Pharmacies and market power

Following on from yesterday's post about market power in the market for diamonds, I was also interested to read this article in The Conversation last week, by Bruce Baer Arnold (University of Canberra), about retail pharmacies in Australia:

In Australia, you are broadly free to operate most retail premises in any location. Three coffee shops might sit side by side, along with two bike shops and a barber’s.

A consequence of the National Health Act 1953 and state and territory law is that pharmacies are different – that’s why you never see two in a row.

Location restrictions state that when pharmacies relocate, they must do so within 10km of the existing site.

The establishment of a new pharmacy must generally be at least 1.5km from an existing operation.

We also have restrictions on ownership. Pharmacies must be operated by a registered pharmacist. A single person or corporation can own no more than five pharmacies. (Though franchising – where individual owners pay for use of a national brand such as Amcal and for services provided by the brand owner – blurs that restriction.)

The current rules seek to ensure most Australians have access to a pharmacy staffed by a highly skilled professional with a pharmacy degree.

By not having too many pharmacies within the same area, and therefore reduced local competition, it increases the likelihood they’ll make enough profit to stay open.

Such restriction is pragmatic, although it discomforts free-market purists who believe fewer rules foster competition through lower prices and better service.

It's interesting to note that New Zealand currently has similar rules to Australia (although the Therapeutic Products and Medicines Bill was initially going to relax the restrictions, it seems from the latest version of the Bill that it won't - see here for more). And it doesn't take a "free-market purist" to see what is going on here. If ownership of pharmacies is restricted to pharmacists, the number of pharmacies each owner can own is limited, and regulations state that pharmacies can't be located close to each other, local competition is lessened and market power is created. Keeping competitors out of your local market is a pretty effective way of gaining and maintaining market power.

Why should consumers care? Among other things, market power for sellers leads to higher prices. We are probably paying more for medicines and other products sold through pharmacies than we would if the market were more competitive. We may also be seeing less innovation in the retail pharmacy sector - why would a pharmacy innovate if they are already making a cosy profit and their market position is protected by law?

The Australian government is worried about the market power that Facebook or Google have, and they are willing to engage in a costly regulatory battle to reduce that market power. Why aren't they worried about the market power that pharmacists have, and willing to lessen the regulatory framework that creates that market power in the first place?