Efficiency Gains from Removing Entry and Price Controls: Evidence from a Change in Regulation

This paper investigates empirically the role of Portuguese deregulation in shaping the structure of local markets for driving instruction and competition among driving schools. We develop a framework that integrates quality and price competition among horizontally and vertically differentiated driving schools. We estimate the model using detailed data on the market structure, firm attributes and prices, and consumer preferences for 593 schools in 117 local markets. We use the estimated parameters of our model to predict the effect that the 1998 easing of price and entry restrictions governing the sector had on firm profits and consumer welfare. We also explore the effect of new regulations currently being considered.