Private monopoly and restricted entry

By Frank Verboven & Biliana Yontcheva.

"Our recent research examines the impact of these regulations by looking at the Latin notary system, under which high-skilled lawyers receive exclusive rights to prepare authentic deeds that certify various important transactions, including, notably, those related to real estate, but also business registrations, marriage contracts and inheritance matters.

We start with a cross-country analysis of several Western European countries. We find that the regulated notary fees are high, and there is a strong bias towards monopoly markets. This provides a first indication that the entry restrictions put a high weight on producer interests.

Next, we provide an in-depth analysis with additional data for one country, Belgium. We show that notary offices tend to have high profit margins, especially for real estate transactions. Furthermore, we show that the current entry restrictions primarily benefit the industry, and hardly take consumer benefits into account.

We use the Belgian data to estimate a demand model for the choice of notary office and individual notary, based on distance and other characteristics, and use this model to evaluate a policy reform that liberalizes the system. Reducing fees for real estate and other transactions would imply strong gains to consumers, without jeopardizing geographic coverage. Liberalizing entry without reducing prices generates substantial gains for consumers and total welfare. Finally, a combination of reducing fees by almost 20% and free entry would maximize total welfare and imply even larger gains for consumers at the expense of the notary firms.

Our research has implications beyond the notary system. It calls for a re-evaluation of occupational licensing regulations in professional service industries, in order to ensure that these policies do not excessively restrict entry into the industry for individuals who have fulfilled the necessary educational requirements. These constraints to entry may often not serve the public interest by correcting market failures but rather protect private industry interests."