Strategic regulatory entry deterrence: an empirical test in the ophthalmic market

This paper provides an empirical test of the theory of strategic regulatory entry deterrence--the theory that subgroups of firms within an industry will use the regulatory process to increase rivals' costs and thereby deter rivals' entry. The results suggest that the commercial practice restrictions present in the ophthalmic industry deterred chain optical firms' entry into the market. This result in combination with earlier findings that the restrictions increase optometrists' prices suggests that cost-raising strategies can be used to disadvantage rivals or drive them out of the market without the need to lower price.