The regulation of entry refers to the number of procedures, the time and the cost that a new company must go through and bear before it can operate legally in a territory (Djankov & al. 2002). These can include different licenses, permits or registrations that differ by the industry depending on the industry specific regulations. Some of the most common regulatory procedures are listed in Appendix 1. According to the WHO, each nation is responsible for placing policies and regulations that address all elements regarding the development of medical devices. The main elements of the technological life cycle include: high quality and good manufacturing practices, and affordable prices with safe, appropriate use all the way to safe disposal after the use (WHO 2013). The WHO and Global Health Observatory (GHO) have put a lot of emphasis in generating common regulatory and approval practices globally. A major challenge in achieving harmonized standards can found in the statistics, which indicate that 37 % of the surveyed 161 countries do not have lists of different types of medical devices or any standardized practices for medical device design. The other major challenge in harmonizing the standard practices is that the nations and continents with the longest history in manufacturing medical devices have already implemented their own regulations. Thus, there are currently five main national and regional regulatory bodies for medical device compliance assessment. The main regulatory bodies are: the Food and Drug Administration (FDA) in the USA, the European Commission (EC) in the EU, the China Food and Drug Administration (CFDA) in China, the Canadian Agency for Drugs and Technologies in Health (CADTH) in Canada and the Pharmaceutical and Medical Devices Agency (PMDA) in Japan.
The formal regulation of medical devices in the UK and the European Community only began in the mid-1990s. Entry regulation can be broadly defined as the imposition of requirements by the government to regulate the entry of new businesses. It is an important component of a country’s institutional environment and exerts a significant impact on the economy (see Djankov (2009) for a comprehensive survey). Even though many studies have shown that regulation often has asymmetric effects on the market competition and allows for incumbents to create a strong protective position in the market in relation to potential entrants, the macroeconomic consequences of regulation have long been poorly understood (Friedman & Taylor 2011).
Government regulation and legislation can often raise entry barriers and lead to favorable conditions for the incumbents. Companies can advance their political interest for instance by scanning the environment and selecting the markets to enter based on their political conditions, by lobbying, through political action committees or by building coalitions to mention a few. (Djankov & al. 2002) theory of regulation suggested that unregulated markets would be doomed to frequent failures and for social efficiency purposes, the government should pose regulation to protect the public from these failures. The government’s role is to ensure that new companies would meet set minimum standards for the provision of goods and services. To achieve this, the companies would need to register and acquire an official approval, signifying good repute in transactions with the public and other companies (Djankov & al. 2002). Reaching the license to operate is the first hurdle to entry has a significant effect on the industry structure, competition, and on firm level on profitability (Shaffer 1995). Government regulation and legislation can often raise entry barriers and lead to favorable conditions for the incumbents (Shaffer 1995). Companies can advance their political interest for instance by scanning the environment and selecting the markets to enter based on their political conditions, by lobbying, through political action committees or by building coalitions to mention a few (Shaffer 1995).
Due to stricter regulation leading to risen barriers to entry for new companies, the incumbents are left with greater market power and higher profits, with the social welfare decreased with higher prices and reduced consumer choice (Djankov & al. 2002). Thus regulation leads to social and economic inefficiency. The impact of the barriers to entry does not only have implications to the loss of competition leading to improved profitability and market power for the industry incumbents but to higher prices and loss of social welfare for the public.. Djankov et al. (2002) show that entry regulation is associated with high corruption and larger unofficial economies. Also entry regulation prevents the creation of new firms. Given that entrepreneurial firms are an important driving force of innovation and technological advances, entry regulation is likely to hinder productivity enhancement.
The above we find the literature from different authors on regulations of goods or products and how it can impact the society. Now going forward let’s analyze European medical device regulations and its characteristics. As my thesis mainly concentrating on German market, for a comparison purpose i will be taking consideration of two other countries too.