International Review of Law and Economics 30 (2010) 178–185

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International Review of Law and Economics

Entry and competition in the Dutch notary profession

Joëlle Noailly ∗ , Richard Nahuis
CPB Netherlands Bureau for Economic Policy Analysis, The Hague, The Netherlands

a r t i c l e i n f o a b s t r a c t

Article history: We investigate changes in competition in the Dutch notary profession after a partial deregulation of
Received 12 November 2007 the market for notary services enforced by the 1999 Dutch Notary Act. This reform liberalized prices
Received in revised form 22 October 2009 and relieved many entry barriers in the profession, while keeping the professional standard in place.
Accepted 3 November 2009
We use the concept of entry thresholds developed by Bresnahan and Reiss (1991) to infer on the effect
of entry on competition before and after the regulatory reform. We find that entry affects conduct in
JEL classification:
the Dutch notary profession as a second notary office in a market requires a much larger market size
L11
than a monopoly office to be profitable, suggesting that profit margins drop with entry. Yet, we find no
L15
L69
significant differences between entry thresholds ratios before and after the regulatory reform. We discuss
potential explanations for the sluggishness of entry in the profession and implications for policy.
Keywords: © 2009 Elsevier Inc. All rights reserved.
Legal services
Competition
Deregulation
Entry

1. Introduction and competition has been facilitated through permitting solicitors

Legal professions are generally characterized by a large range of
restrictive regulations affecting both entry (such as limits on the
number of occupational licenses or minimum education require-
ments) and conduct (such as restrictions on prices and advertising).
In recent years, the European Commission has raised concerns
about the low level of competition in professional services and
in legal professions in particular (European Commission, 2004).
Although some form of regulation may be justified in these markets,
many of the traditional regulations kept in place by professional
organizations are highly restrictive to competition and suffer from
a lack of legitimacy. According to the Commission, there is thus
room for replacing a large range of profession-based regulations
by market-based discipline. This should lead to an increase in
competition and would thereby enhance social welfare through
lower fees and higher quality for consumers and reduced rents for
lawyers.
A number of studies have looked at the effect of (de)regulation
on lawyer’s income, prices and quality (Domberger & Sherr, 1989;
Lueck, Olsen, & Ransom, 1995). In Europe, the liberalization of legal
services in England is a well-studied example. Since the mid-1980s,
entry in conveyancing services is no longer restricted to solicitors
to advertise. The main conclusions of the literature that looked at
the English situation is that the liberalization of advertising has led
to reduced fees and increased consumer’s satisfaction (Domberger
& Sherr, 1989; Love, Stephen, Gillanders, & Paterson, 1992; Stephen,
Love, Gillanders, & Paterson, 1993). Yet, the liberalization of entry to
paraprofessionals did not have the expected effects. Indeed, overall
entry by non-solicitors has remained limited and there is evidence
of some degree of accommodation between the two types of pro-
fessionals (Stephen & Love, 1996).1 More recently, new regulatory
changes have been proposed to reform further the English legal pro-
fessions, namely by allowing non-lawyers to own legal firms and
by improving the standards for transparency and accountability
(Department of Constitutional Affairs, 2003; Clementi, 2004).
Another example of regulatory reform in the legal professions is
the liberalization of the market for notary services enforced in 1999
in the Netherlands. Just as in most civil law jurisdictions (most EU
countries), the Dutch notary falls into the ‘Latin’ notary system, in
which the notary holds the status of a lawyer specialized in con-
tractual law. The main task of the notary is to authenticate and
control the legal validity of transactions, such as wills, marriages,

∗ Corresponding author at: CPB Netherlands Bureau for Economic Policy Analysis,
P.O. Box 80510, 2508 GM The Hague, The Netherlands.
E-mail address: noailly@cpb.nl (J. Noailly).
1
Stephen and Love (1996) give two potential explanations for this. First, the low
level of entry may be explained by lower business opportunities due to a slump
in the housing markets. Second, paraprofessionals may not have find it profitable
to enter as they could not spread the risks across several services (by constrasts to
multi-service providers such as banks and building societies).

0144-8188/$ – see front matter © 2009 Elsevier Inc. All rights reserved.
doi:10.1016/j.irle.2009.11.001
 J. Noailly, R. Nahuis / International Review of Law and Economics 30 (2010) 178–185
establishment of companies and real estate transactions.2 With
the enforcement of the 1999 Notary Act, the Dutch government
aimed to achieve two main objectives: (1) to increase competition
and (2) to maintain a high quality of services. In order to increase
competition, the reform removed price fixing and relieved many
entry requirements in the profession. The cap on the number of
appointed notaries was gradually expanded after 1999 and entirely
removed after 2003. Nowadays, notaries are free to open an office
in the district of their choice. Prices, formerly fixed by the profes-
sional organization, have been gradually liberalized and consumers
can now compare the prices of notary services on the internet. In
parallel, in order to preserve the quality of services, a range of exist-
ing regulations, such as the level of the professional standard, the
professional monopoly or the interdiction to specialize, were not
challenged by the reform. Yet, the partial deregulation of notary ser-
vices initiated in the Netherlands is a pioneer in Continental Europe
and may serve as an example for other countries.3
The aim of this article is to compare the level of competition
before and after the introduction of the 1999 Dutch Notary Act.
To this end, we use the concept of entry thresholds developed
by Bresnahan and Reiss (1990, 1991) to assess how competition
changes with entry in the market. In a competitive market we
expect entry to cause an increase in competition and thus a fall
in profit margins for all firms in the market. The intuition of Bres-
nahan and Reiss is that this fall in profit margins implies that each
firm needs a larger market size to be able to maintain the same level
of profits. In other words, an increase in ‘entry thresholds’, i.e. an
increase in the per firm market size required to support an addi-
tional firm in the market, reflects an increase in competition. For
example, if a monopoly needs a market size of 1000 consumers to
be profitable and we observe that a second firm breaks even when
the market size reaches 3000 consumers (so that each firm serves a
market of 1500 consumers) then we can conclude that competition
has increased due to entry. Indeed, in a duopoly market both firms
need to serve more consumers than a monopoly firm to remain
profitable. If instead we observe that the second firm can break
even when the market size reaches only 2000 consumers (1000
consumers per firm), then entry thresholds and thereby profit mar-
gins are not affected by entry and competition remains unchanged.
In that case, we can suspect collusive behavior.
The advantage of the Bresnahan and Reiss methodology is that
it does not require data on price-costs margins to assess competi-
tion changes but only data on the number of firms per local market.
We have access to data on the location of notary offices from the
yearbooks of the Royal Dutch Notarial Society. We estimate entry
thresholds for two years before and two years after the regula-
tory reform. Our findings suggest that entry affects conduct in the
market for notary services. We find that a second office requires a
market size more than twice as large as the market size required by
a monopoly office to be profitable. We find, however, no variation
in entry thresholds before and after the regulatory reform suggest-
ing that the level of competition as measured by entry decisions is
not significantly higher after the enforcement of the reform. This
result implies that the objective of the reform to rise competition in
the notary market has not been realized yet. We discuss potential
explanations for the sluggishness of entry despite the reform and
review policy implications.
2
The ‘Latin’ notary is an institution that prevails in most civil law countries in
Continental Europe, such as the Netherlands, France, Spain, Italy and Germany. The
‘Latin’ notary is not to be confused with the ‘notary public’ institution that prevails
in the Anglo-American civil law system and who hold more of a clerical position.
A comparative analysis of the two types of notary system can be found in Malavet
(1996).
3
The Canadian province of Quebec provides another example of liberalization of
notary services under the Latin notary system.
179
The remainder of the article is organized as follows. Section
2 describes the institutional change enforced by the 1999 Dutch
Notary Act. Section 3 presents the empirical framework and Section
4 the data. Section 5 gives the empirical results. Section 6 presents
additional evidence and robustness tests. Section 7 concludes.
2. Regulation of the notary profession in the Netherlands
There are about 1500 notaries in the Netherlands working in 900
offices. In the Netherlands, as in most of continental Europe, the
notary is a legal professional whose work consists in the authen-
tification of legal documents dealing with family law, real property
and corporate services. The notary fulfils thus a public function in
the sense that he provides legal certainty and security into the legal
structure of society. This central role justifies the need for regula-
tion. Proponents of the public interest approach argue that without
regulation the market for legal services might fail to deliver opti-
mal quality due to information asymmetry and the presence of
externalities (Arrunada, 1996; Noll, 1989). A consumer, for exam-
ple, is not well equipped to evaluate whether his requests have
been laid down in legally solid way in the notary document. A
consequence of this information asymmetry is that the notary has
only weak incentives to provide high quality services. In addition,
high quality notary services ensure legal certainty and security to
transactions. This generates positive external effects on society.
Because these externalities on third parties are not accounted for
in the transaction between the consumer and the notary, the over-
all quality produced at the society level will be too low compared
to what would be optimal. These arguments justify some quality
regulation in the form of education requirements and minimum
quality standards. Nevertheless, opponents to regulation argue, in
the spirit of the capture theory approach (Hadfield, 2000; Posner,
1974; Stigler, 1971), that entry restrictions and quality standards
only serve the purpose of private interest groups. Occupational
licenses, minimum standards, entry controls and minimum rates
are anti-competitive practices kept in place by professional associ-
ations to capture monopoly rents. The current consensus in policy
circles falls generally between these two approaches and acknowl-
edges that, although there is an economic rationale for some quality
regulation, there is also a need to remove unnecessary and dispro-
portionate restrictions to competition (OECD, 2007).
In the Netherlands, the regulatory reform of the notary profes-
sion has been on the policy agenda since the beginning of the 1990s.
Up to 1999 the Dutch notary profession was regulated according to
the rules laid down in the Notary Act of 1842 and through self-
regulation by the Royal Dutch Notarial Society. The need for a new
Notary Act was stimulated by a large process of deregulation in the
Dutch economy initiated by the Dutch Competition Act of 1987.
The deregulation reform was highly debated in the Dutch Parlia-
ment between 1994 and 1998 and a first draft of the act met fierce
opposition from the Royal Dutch Notarial Society. The professional
association particularly feared a deterioration of quality due to the
introduction of competition and was strongly opposed to price lib-
eralization. Finally, in 1999, the Dutch Notary Act came into force.
The objectives of the reform were twofold. Firstly, the 1999 Notary
Act aimed to increase competition. This should lead to greater effi-
ciency, lower prices for consumers and more innovation in service
provision. Secondly, next to increasing the level of competition, the
reform also aimed to maintain a high quality of notary services.
The objective of increasing competition was implemented by
liberalizing prices and facilitating entry in the profession. While
in the previous system the Royal Dutch Notarial Society used to
prescribe fixed rates for notary services, with the introduction of
the 1999 Notary Act the rates are set free. Under the previous Act,
fixed rates for family services aimed to guarantee equitable access
180 J. Noailly, R. Nahuis / International Review of Law and Economics 30 (2010) 178–185
by setting reasonable prices. Rates for real property services were a
fixed digressive percentage of the purchase price. As a consequence,
when the prices on the housing market increased, the rates for real
property services also increased. Finally, rates for corporate ser-
vices were also fixed by the professional association. The rates for
family services and corporate services became free immediately
after the enforcement of the new Act. The rates for real property
services were gradually liberalized through a transitional arrange-
ment. During this transition period, fees for real property services
could vary within legally determined ranges which were expanded
yearly. As of July 2003, all rates are unregulated. There are only
two exceptions for which the rates remain regulated: (1) in case
of family services for low-income households, (2) when there is a
need to guarantee the continuation of accessible notary services,
for example, if the rates would become extremely high. Besides
liberalizing prices, the 1999 Notary Act also greatly facilitated the
establishment of new notary practices. The number of notaries is
no longer capped and notaries are now free to open a new office
in the place of their choice. Before 1999, the number of notaries
per district was capped in order to prevent a surplus of notaries in
the big cities and a shortage in the countryside. As a consequence,
a junior notary could only be appointed when a vacancy became
available. In the first four years after the new Act came into force
the increase in the number of notaries was capped at 10% per year.
In 2003, this last restriction was also abolished.
In parallel, the objective of high quality services was pursued
by preserving the professional standard in place. The professional
monopoly of notaries on contractual transactions (no other profes-
sion can draft a notary act) and the interdiction to specialize4 were
not challenged by the new law, although they have been subject
to much criticisms (Plug, Dekker, van der Hurk, Baarsma, & Felso,
2003). Regarding education and appointment, the Dutch Notary Act
modified certain requirements: (1) the duration of the work place-
ment doubled from three to six years, (2) the professional training
of the Royal Dutch Notarial Society for junior notaries became
mandatory, and (3) before opening a new office the junior notary
has to submit a business plan to show that his future practice can
be cost-effective within three years. In fact, the prolongation of the
professional training is not a real strengthening of the existing edu-
cation requirements, but more of an adaptation to what happened
in practice. Before 1999, it was already common for junior notaries
to have six years of work placement before they could actually be
appointed. The main innovation is the business plan, which has
to be approved by a committee of financial, economic and notary
experts.
Next to these major modifications, the 1999 Dutch Notary Act
also changed the status of the Royal Dutch Notarial Society, which
is no more a private association but a public body. Finally, the
supervision of quality control by the Supervisory Chambers has
been slightly reorganized due to the introduction of a Authority for
Financial Supervision, which oversees notaries’ compliance with
all financial regulations. Existing rules restricting advertisement
remain in place.
Since the enforcement of the Notary Act, developments on the
notary market have been subject to much attention by policy mak-
ers. Regarding the evolution of tariffs, the evidence show that prices
for real estate services have decreased but prices for family services
have raised. Between 1999 and 2003, the price for drawing up a
will almost doubled, the price for a marriage contract with two
equal wills increased by 60% and the price for a partnership agree-
ment increased with almost 40% (Commissie Monitoring Notariaat,
2003). Such an increase in the prices of family services was expected
4
Dutch notaries have the obligation to provide all three types of services at the
office level.
as the regulatory reform signified the end of the cross-subsidization
between family services and real estate services.
A particularly striking development in the notary market is the
low level of entry in the profession since the deregulation. The
number of notary offices has remained stable and there has been
no marked growth in the number of notaries appointed. Between
1995 and 2003, the number of notary offices over the whole country
increased from 807 to 882, so about 9%.5 There is also evidence that
junior notaries prefer to join existing offices rather than opening
their own practice. The average number of notaries per office grew
slightly, from 1.47 in 1995 to 1.60 in 2003 (Commissie Monitoring
Notariaat, 2003). Nevertheless, an evaluation of the reform in Octo-
ber 2005 concluded that the liberalization of notary services had
led to successful reforms, despite some concerns about the poten-
tial risk that the deregulation could put on quality (Commissie
Hammerstein, 2005). Following the advices of the report, the Dutch
Parliament decided not to return to a system of fixed prices.
3. Empirical framework
We examine the relationship between the number of notary
offices in a local market, market size and competition. We use
the empirical framework developed by Bresnahan and Reiss (1990,
1991). This approach looks at how entry of a new firm in a (geo-
graphically defined) market affects the profit margins of existing
firms. Bresnahan and Reiss look at competition within retail and
professional firms in small isolated markets using cross-sectional
data on market characteristics and on the number of establish-
ments. They find that competition increases quickly with entry
and that most of the variation in competition occurs with the
entry of the second or third firm. In the last decade, the method-
ology of Bresnahan and Reiss has been applied repeatedly in
diverse industries. Pfann and van Kranenburg (2003) compare,
as we do, time periods before and after a policy reform, but
then in the local newspaper market. Other articles employing
the methodology of Bresnahan and Reiss include work on physi-
cians (Brasure, Stearns, Norton, & Ricketts, 1999), pharmacists
(Schaumans & Verboven, 2006), hospitals (Abraham, Gaynor, &
Vogt, 2003; Dranove, Shanley, & Simon, 1992), the brewing industry
(Manuszak, 2002), banks (Cetorelli, 2002), motels (Mazzeo, 2002)
and driving-schools (Asplund & Sandin, 1999).
The intuition of Bresnahan and Reiss is that when profits per
transaction fall (due to an increase in competition) firms need a
larger market size, i.e. they need to sell their products to a larger
number of consumers, to maintain their levels of profits. The critical
market size for a firm to enter a market and be profitable is called
an ‘entry threshold’. The attractiveness of the indicator rests in the
fact that it does not require data on price-cost margins to assess
changes in competition, but only data on the location of firms in
geographical markets. The underlying idea is that if a firm oper-
ates in a given market it must make profits, otherwise it would not
have entered the market in the first place. Another advantage of the
methodology is that it can capture non-price competition. The fall
in profit margins can come indistinctively from a decrease in prices
or from an increase in quality. This is relevant for the notary pro-
fession since before the introduction of the 1999 Notary Act prices
were fixed and notaries could thus only compete on quality.
The interpretation of entry thresholds relies, however, on sev-
eral assumptions. Firstly, the product must be homogenous. This
is a reasonable assumption in the notary market as all notaries are
obliged by law to sell all types of services. Secondly, the method-
5
An exception is the region of Amsterdam, in particular in the new neighborhood
of Diemen and Amstelveen, in which the number of notary offices increased by 30%
over the same period.
 J. Noailly, R. Nahuis / International Review of Law and Economics 30 (2010) 178–185
ology requires that we can actually identify the relevant size of
the market in which firms compete. In our analysis, we assume
that the market for notary services is intrinsically local. Evidence
from consumer surveys point out that the location and the perma-
nent relation with a notary are the most important factors when
selecting a notary (Commissie Monitoring Notariaat, 2003). Since
we focus on local markets, the method is more appropriate to mea-
sure competition in the market for individual consumers, i.e. the
market for small real estate services and family services, than in the
market for professional consumers. Obviously, professional con-
sumers, such as firms, banks and housing corporations are more
likely to compare notary services at the national than at the local
level. Nevertheless, measuring the level of competition in local mar-
kets is particularly relevant as individual consumers are relatively
infrequent buyers of notary services and are thus more likely to be
subject to asymmetric information and market power.
Following Breshanan and Reiss and assuming symmetric firms,
per-firm profits can be written as:
S In our empirical analysis, we aim to compare the entry thresh-
˘N = VN dN − FN (1)
N
where N is the number of firms in the market and VN denotes
the variable profits per consumer (prices minus variable costs),
dN = Q/S denotes the quantity demanded by a representative con-
sumer, Q is the total demand in the market, S is market size, i.e.
the number of consumers in the market, and FN are fixed costs.
Variable profit margins per consumer decreases upon entry. The
N-firm entry thresholds SN is the market size level at which an N
th-firm just breaks even at a zero-profit condition. Setting ˘N = 0
and solving for NS , we get:
S FN
sN = = (2)
N VN dN
The ratio of entry thresholds per firm sN+1 /sN provides an indica-
tion for competition.
sN+1 FN+1 VN+1 dN+1
= (3)
sN FN VN dN
In Eq. (3) we cannot separately identify the effects of an entry on
toughness of competition and the effects of an entry in fixed costs.
However, if we assume that fixed costs do not change with entry,
s reform (1995 and 1997) and two years afterwards (2003 and 2004).
the ratio N+1
sN provides inference on the toughness of competition.
The intuition is that if it takes a market with 1000 customers to sup-
port a single firm and if entry leads to an increase in competition,
then it should take more than 2000 customers to support two firms,
i.e more than 1000 customers per firm such that the ratio s2 /s1 lies
above one. If the ratio is larger than one, entry causes variable prof-
its to decrease and thus competition increases. A ratio close to one
would instead be a sign of potential joint monopoly behavior as
variable profitability does not change with entry of an additional
firm. As an illustration, if we find that the ratio of duopoly over
monopoly entry thresholds is equal to 1.5, we can conclude that
competition increases with entry, as a monopolist serves about 50%
fewer consumers than a duopolist. As the number of firms increases
further and the entry thresholds ratio gradually declines to unity we
are getting closer to the competitive equilibrium. In other words, a
ratio close to one when there are already many firms in the market
would then reflect perfect competition as in this case profit margins
are zero.
As stated above, one of the limits of the Bresnahan and Reiss
methodology is that without data on firms’ prices, costs or quan-
tities, we cannot infer whether an increase in entry thresholds is
caused by an increase in fixed costs or by a decrease in variable
profits (that is a decrease in prices or an increase in quality). Bres-
nahan and Reiss argue that fixed costs are likely to be nearly the
same among entrants. They also provide complementary evidence
181
Table 1
Market counts.
1995 1997 2003 2004
Total number of notary 218 229 239 243
offices
% of markets with n notary offices (N = 777)
0 77.9 77.1 75.7 75.4
1 17.8 18.5 19.5 19.5
2 3.2 3 3.5 3.7
3+ 1.1 1.4 1.3 1.4
on a sample of tire dealers showing that prices actually fall with
entry. Abraham et al. (2003) extend the entry model of Bresnahan
and Reiss by adding quantity data on the number of admissions in
hospital markets. They find that entry raises quantity, (implying a
decrease in prices) in the hospital market and hence rule out the
fixed costs explanation. In Section 6, we provide some additional
evidence following Abraham et al. (2003).
olds ratios before and after the enforcement of the 1999 Notary
Act. A priori, we would expect the liberalization of prices and the
removing of entry barriers to foster entry and competition in the
notary market. Therefore, we expect entry thresholds ratios to be
larger after the reform than before. If competition gets tougher, a
second notary office is expected to need a larger market size than
before the reform. Nevertheless, since the deregulation was only
partial, there may still be important entry barriers in the profession.
In that case, entry thresholds ratios may remain unaffected after
the introduction of the Notary Act. In any cases, our results should
be interpreted with care as we cannot disentangle the impact of the
reform on competition from other effects. In the absence of a con-
trolled experiment, we cannot control for other unobserved factors,
such as a shift in technology or in demand, that may have affected
the market for notary services in addition of the regulatory reform.
4. Data
We borrow information on the geographical location of notary
offices from the yearbooks of the Royal Dutch Notarial Society. We
had access to these data for four years: two years before the policy
We combine information on geographical location with demo-
graphic data at the city level, borrowed from Statistics Netherlands
for the years 1995 and 2003.6 We match 1995 and 1997 (2003 and
2004) location data with 1995 (2003) demographic data.
Our unit of analysis is a local market for notary services. We use
local cities to define these local markets. There are about 2430 local
cities in the Netherlands. We want to reduce the possibility of mar-
ket overlaps and to minimise for the possibility of consumers to
travel outside their market. Therefore, we consider markets which
are isolated from other large cities. We construct isolated mar-
kets by excluding:7 (1) towns with more than 50.000 inhabitants
as these large towns are in fact composed of several local mar-
kets which we cannot disentangle from each other, and (2) towns
located within a radius of 7 km from another town of 20.000 or
more inhabitants.8 This reduces our sample to 777 local markets9
covering more than 200 notaries offices in every year (which repre-
sent about 30% of all offices). Table 1 presents counts of the number
6
Due to a large number of missing values, we use 2001 data instead of 2003 data
for the income variable.
7
In our robustness analysis in Section 6 we will test different definitions of local
markets.
8
All the distances are bird-flight distances between the centers of each town.
9
We selected the same identical markets in all years.
182 J. Noailly, R. Nahuis / International Review of Law and Economics 30 (2010) 178–185

Table 2 Table 3
Transition matrix of market structures between 1995 and 2004. Summary statistics, 2003, N = 777.

1995–2004 0 1 2 3 Variable Definition Mean Std. err Min. Max.

0 579 26 0 0 NOT Number of notary 0.28 0.59 0 4

1 7 118 12 1 offices in market
2 0 7 14 4 POP Number of people 4375 6866 120 44600
3 0 0 3 6 living in the local
city
The matrix gives the number of markets with a given market structure in 1995
INC Average yearly 8.3 0.85 5.3 12.8
(column) that ended up in a given market structure in 2004 (row).
income per
inhabitant (in 1000
euros)
YOUNG % Population aged 0.32 0.03 0.22 0.53
0-18
OLD % Population over 0.12 0.03 0.03 0.3
65
HOUSE Average property 0.85 0.25 0.35 2.94
value in 100,000
euros

5. Estimation results

We estimate the demand for notaries offices in a local mar-

ket by an ordered probit. We adopt a specification as in Genesove
(2004): where ˘Ni = SViN exp(−i ) − FiN where i is a multiplicative
error term capturing unobserved variable profits or fixed costs. We
consider the following linear specification:

Pr(˘kit ≥ 0) = Pr(Ni = kt ) = ˛ln(Sit ) + ˇXit − ıit − it (4)

Fig. 1. Market structure by town population.
where Pr(kit ≥ 0) is the probability that the profits of k =
0, 1, . . . , N notaries offices in a local market i in year t is posi-
tive, Pr(N = k) is the probability that there are exactly k offices in
of market configurations for each year in our dataset. In our sam- the market, S is the market size of the local market, X is a vec-
ple of small isolated towns, the total number of notaries increased tor of demand shifters (OLD, YOUNG, INC, HOUSE), that affects the
from 218 in 1995 to 243 in 2004, so by about 11% which is in line demand for notaries in a local market, ıi are the cutpoints of our
with the growth at the national level. Over time, the percentage of ordered probit estimations, and  is the error term. In this specifi-
markets with no notary offices decreased so that there are more cation the cutpoints capture the effects of entry on both variable
markets with one or two offices. profits and fixed costs. Table 4 presents our baseline estimates.
Table 2 gives the transition matrix of market structures between The estimation results show that population positively affects the
1995 and 2004. Most of the entry dynamics took place in markets demand for notaries. Income per capita also has a positive signifi-
with zero and one notary offices in 1995, among which 26 mar- cant impact on the number of notary offices in a market. In contrast,
kets became monopoly and 12 became duopoly markets in 2004, house prices have a negative significant coefficient, reflecting thus
respectively. the fixed costs to open a notary office. The demographic compo-
The number of notary offices in a market is affected by the size sition of the population in the market does not seem to have a
of the market. Fig. 1 plots the distribution of towns with zero, one, significant impact (except for the percentage of elderly in 1997 and
two or three or more notary offices. The monopoly threshold seems
to be around 5000 inhabitants as the majority of towns with more
Table 4
than 5000 inhabitants have one notary office. Entry of a second
Baseline estimates.
office seems to only occur in much larger towns. The majority of
towns with two offices has a population larger than 20,000 inhab- 1995 1997 2003 2004
itants. LNPOP 1.107 ***
1.122 ***
1.474 ***
1.564 ***
Town population is not the only predictor of the number of (0.070) (0.070) (0.097) (0.10)
notary offices. Other factors can affect the demand for notaries in a INC 0.482 *** 0.433 *** 0.286 *** 0.306 ***
(0.12) (0.12) (0.091) (0.088)
local market. We include the following additional demand shifters:
OLD 1.424 4.437* 5.181* 3.359
the percentage of people under 20 years old (YOUNG) and the per- (2.46) (2.42) (2.81) (2.84)
centage of people above 65 years old (OLD). Finally, we also include YOUNG 2.549 3.667 4.271 3.714
the average income per capita (INC) and the average housing price (2.67) (2.65) (2.99) (3.02)
(HOUSE).10 Housing prices can be a demand or a cost shifter. In the HOUSE −0.842 *** −0.766 *** −0.752 *** −0.930 ***
(0.29) (0.30) (0.23) (0.23)
former case, it reflects revenues from real estate transactions; in the ı1 14.010 *** 14.494 *** 16.615 *** 16.865 ***
latter case it reflects the fixed costs to open a notary office. Demo- (1.838) (1.835) (1.902) (1.923)
graphic changes at the level of the local market between 1995 and ı2 15.845 *** 16.386 *** 19.062 *** 19.388
2003 have been only moderate and there is no significant difference (1.872) (1.871) (1.974) (2.002)
ı3 16.872 *** 17.302 *** 20.227 *** 20.686 ***
between the sample mean population in both years. Descriptive
(1.891) (1.887) (1.999) (2.031)
statistics for the year 2003 are given in Table 3.
Log-Likelihood −291 −293 −252 −246
N 777 777 777 777

Standard errors are given in brackets. ***, ** and * indicate significance at the 1%, 5%
10
What we use is the valuation of houses for fiscal purposes. and 10% level, respectively.
 J. Noailly, R. Nahuis / International Review of Law and Economics 30 (2010) 178–185 183

Table 5
Per firm entry thresholds and entry thresholds ratios.

1995 1997 2003 2004

s1 6572 6304 5884 5663

(484) (454) (330) (305)
s2 17245 17026 15464 14220
(2321) (2280) (1582) (1313)
s3 29064 25682 22791 21740
(6819) (5692) (3411) (2925)
s2 /s1 2.62 2.70 2.63 2.51
(0.31) (0.32) (0.27) (0.24)
s3 /s2 1.68 1.50 1.47 1.53
(0.30) (0.24) (0.19) (0.18)

test s2 /s1 = 1 reject reject reject reject

Chi-sq. 24.89 *** 25.90 *** 39.02 *** 44.86 ***

test s3 /s2 = 1 reject reject reject reject

Chi-sq. 4.46 ** 3.75 ** 6.25 *** 8.65 *** Fig. 2. Entry threshold ratios and 95% confidence intervals.

Standard errors are calculated according to the delta-method and are given in brack-
ets. ***, ** and * indicate significance at the 1%, 5% and 10% level, respectively.
2003). Finally, the cutpoints are positive and increasing indicating
that profits are lower in markets with more firms.
By setting the break even profits to zero in Eq. (4) and solving
for S, we obtain the entry threshold to support k firms in the market
as follows:
 
ık − ˇX̄
Sk = exp
˛ introduction of the business plan for instance may restrain entry
where all covariates are evaluated at their sample mean X̄. The per
firm market size required to support k firms in the market are then
sk = Sk /k.
Table 5 gives the per firm entry thresholds estimates for
monopoly and duopoly markets. The table also reports the s3 /s2
thresholds, although given the low number of observations in tri-
opoly markets, we do not interpret these estimates. We find that a
monopoly notary office needs about 6000 customers to enter the
market and be profitable. A second notary office can only enter
when each firm can serve between 14000 and 17000 customers. In
other words, in duopoly markets both firms need more than twice
the market size of a monopoly office to be profitable. The estimated
duopoly/monopoly ratios lie close to 2.6 and are significantly larger
than one. These results indicate that entry affects conduct in the
notary market, as the entry of a second office implies a substan-
tial increase in competition. The magnitude of the ratio is striking
as it implies that it is very difficult for a second office to enter the
market. Bresnahan and Reiss argue that very high ratios may occur
if professionals tend to seek out isolated monopolies. Remarkably,
we have a large fraction of monopoly markets in our sample and,
as described earlier, there are less empty markets over the years,
suggesting that notaries may be spreading entry geographically in
order to capture monopoly rents. This also indicates that there is
room for more entry in the market.
Table 5 also shows that the duopoly/monopoly ratios are of 2.62
in 1995 and 2.51 in 2004. We tested whether the ratios vary over the
years but find no significant difference between any of the years,
as shown on Fig. 2 which plots the entry thresholds ratios and their
95% confidence intervals. This is a surprising result as it suggests
that the level of competition in 2004 is not significantly different
from the level of competition in 1995. Entry does not lead to tougher
competition after the reform than before.
Unchanged entry threshold ratios might be explained by the
sluggishness of entry in the notary market despite the reform.
Indeed, a close look at the developments in the notary market
shows that entry has been very limited over the last decade. Until
2003, growth in the number of notaries was capped at 10% per year.
In addition, the inflow of junior notaries also dropped as an increas-
ing percentage of graduates in notarial law went to work outside
the notary profession. Finally, there has been no large increase in
the number of new independent offices. Between 1994 and 2000
the number of independent offices remained stable between 740
and 750 and increased slightly afterwards to reach about 770 offices
in 2004.
There are several potential explanations for the sluggishness
of entry. Firstly, although the reform removed many entry barri-
ers, there may still be institutional barriers preventing entry. The
(5)
even though only few business plans are rejected every year.11
Evidence from surveys among junior notaries show that they expe-
rience the business plan as an obstacle to open a new practice. In
addition, junior notaries also mention the interdiction to special-
ize as another obstacle to open solitary offices, as the notary must
then be an expert on all types of services. Since the services are
becoming more and more complex, junior notaries then tend to
prefer to join existing offices. There is evidence that the average
size of notary offices slightly increased since the reform. Finally,
paraprofessionals are not allowed to enter the profession since the
reform did not challenge the professional monopoly of notaries.
Other explanations for the sluggishness of entry may be due to
the new competitive environment created by the reform. With the
liberalization of prices the regulatory reform greatly changed the
nature of competition and junior notaries may find it too risky to
open a new office in a liberalized environment. Finally, entry in the
market might be difficult due to the presence of important sunk
costs, such as advertising costs, reputation and goodwill. At last,
we should keep in mind that the reform is still recent and on some
aspects the deregulation took place gradually over the years, so that
not all the effects of the reform may have been realized yet. Also, we
cannot exclude the possibility that the reform increased the level
of competition in markets, such as very large cities, which are not
captured in our empirical analysis.12 Future work and policymak-
ing should therefore carefully follow the development of entry in
the notary market.
6. Additional results and robustness tests
In Section 5 we found that the duopoly/monopoly ratios were
very high in the notary market, suggesting that competition sub-
11
In 2006, 166 business plans were submitted, of which 111 were approved. Only
one business plan was rejected, the other four withdrawn (Commissie Monitoring
Notariaat, 2003).
12
There is some evidence that the number of notary offices grew considerably
in the region of Amsterdam between 1995 and 2003. In large cities, entry barri-
ers caused by sunk costs due to reputation and loyalty of consumers may be less
important than in small towns.
184 J. Noailly, R. Nahuis / International Review of Law and Economics 30 (2010) 178–185

Table 6 Table 7
Estimates of entry on log(quantity). Entry thresholds estimations with strict market size definition, N = 510.

1995 2003 1995 1997 2003 2004

*** ***
DUOPOLY dummy 0.523 0.406 very isolated markets 2.35 2.56 2.54 2.37
(0.13) (0.11) (0.34) (0.38) (0.35) (0.28)
POP 0.283 *** 0.229 *** interrelated market 2.72 2.8 2.73 2.59
(0.047) (0.054) (0.33) (0.34) (0.28) (0.24)
INC −0.150 0.104
(0.12) (0.072)
OLD 0.384 2.602 1995 and 2003. Due to the potential endogeneity of market struc-
(2.49) (2.30)
ture, we do not interpret the coefficients of the market structure
YOUNG −1.504 1.812
(2.21) (1.88) dummy, as the estimates are potentially inconsistent, but only their
HOUSE 0.115 -0.421 ** sign. In addition, there is a potential selection bias since quantity
(0.17) (0.18) is only observed in markets in which there is at least one notary
Constant 7.082 *** 4.091 *** office.15 Despite these limits, our simple OLS estimation provides a
(1.72) (1.31)
Observations 137 137
reasonable intuition. Since quantity raises with entry, the evidence
R-squared 0.26 0.34 suggest that high entry threshold ratios go along with an increase
in the toughness of competition, confirming our interpretation in
Robust standard errors are given in brackets. ***, ** and * indicate significance at the
1%, 5% and 10% level, respectively. Section 5.
Finally, we also computed entry threshold ratios for different
definitions of our local markets. We first included in our market
stantially increases with entry. Nevertheless, while we believe that size definition a variable capturing the population nearby a town16
profit margins drop when a second firm enters, we cannot rule out in order to include potential commuters but found no significant
the possibility that fixed costs or entry barriers are much larger impact. Then, we constructed highly isolated markets by adding a
for a second firm than for a first one. Abraham et al. (2003) sug- criteria to the definition used in Section 4, namely: we excluded
gest to use quantity data to distinguish between a fall in profit towns located within 20 km of a town of 100,000 or more inhab-
margins and an increase in fixed costs. Their intuition is that if itants. This was to avoid people travelling to large cities such as
competition increases and profit margins fall, price would decrease Amsterdam or Rotterdam to visit a notary. With this additional
(or equivalently quality would increase in non-price competition) restriction, our sample of highly isolated cities was reduced to 510
such that the quantity demanded in the market would increase. In local markets. Finally, we also formulated a more lax definition
other words, if we observe that the quantity demanded in the mar- by allowing for interrelated markets. Just as Asplund and Sandin
ket increases with entry, then we can infer that profit margins are (1999), we included a variable (DIST) representing the distance
falling and rule out an increase in fixed costs. to the nearest market with at least one notary. Table 7 gives the
Without reproducing the complete analysis of Abraham et al. duopoly/monopoly ratios obtained with these two market defini-
(2003), we aim here to draw simple additional inferences on our tions. The ratios are not sensibly different from the ones computed
entry thresholds. To do so, we have access to data on the num- in Section 5: all ratios lie above 2 with relatively wide confidence
ber of notary acts per local markets as recorded by the Dutch Land intervals. Here again, we find no significant differences between
Registry13 in 1995 and 2003. We look at the same local markets as the ratios from one year to another.
in Section 5 for which there is at least one notary office. We are left
with 137 local markets in both years. In 2003, the number of notary 7. Conclusions
acts recorded at the Land Registry was of 460 transactions on aver-
age per local market.14 We regress the logarithm of the quantity of This article aimed to investigate changes in competition before
notary acts in each market on the same demand and costs shifters as and after the regulatory reform of the Dutch notary market enforced
in the previous section (POP, INC, OLD, YOUNG, HOUSE) and include by the 1999 Notary Act. The reform marked the end of price regu-
in addition a dummy for duopoly markets reflecting the impact lation so that Dutch notaries are now free to set their own prices. In
of entry. Here again, we exclude triopoly markets of our analysis addition, the reform liberalized entry in the profession: the num-
due to the small number of observations, so that we only compare ber of notaries was gradually expanded and is nowadays no longer
monopoly and duopoly markets. Table 6 provides OLS estimates capped. Also, notaries can now open an office in the district of their
of the quantity equation parameters. We find that the market size choice. In parallel, however, other existing regulations were not
largely increases the market quantity transacted. In 2003, the per- challenged, such as the level of the professional standard, the pro-
centage of elderly also increases quantity demanded while housing fessional monopoly of notaries and the interdiction to specialize at
property values reduce it. The duopoly dummy also has a positive the office level. The underlying motivation for maintaining these
impact on quantity. As a second office enters, the quantity trans- regulations was that they bring important guarantees on the qual-
acted in the market rises, all other things being equal. There is no ity of services. On certain aspects, appointment requirements were
significant difference between the effect of entry on quantity in strengthened notably by the introduction of a mandatory business
plan.
Using the methodology of entry thresholds ratios developed
13
In the Netherlands, the titling system is organized under the recording sys-
by Bresnahan and Reiss (1990, 1991), we find that entry affects
tem (as opposed to the registration system prevailing in the UK for instance). The conduct in the market for notaries. Indeed, in a duopoly market
main difference between the two systems deals with the role of the government. a firm needs a market size more than twice as large as a firm in
Under recording, the government maintains a public record of property transac-
tions in a National Land Registry, but buyers and sellers are responsible for enforcing
ownership rights in case of an error in the record. Under registration, however, the
15
government certifies ownership rights at the time of transaction. If a claim arises, To check for this, we also estimated a Heckman sample selection model but we
the claimant can loose the title but he can get monetary compensation from the could not reject the null hypothesis that the selection and quantity equation are
government. independent.
14 16
Unfortunately, we cannot match these data at the office level so we cannot This variable was constructed by summing all the population living within 3 km
correct for the scale of the notary offices. of the local market but which is still outside the local market.
 J. Noailly, R. Nahuis / International Review of Law and Economics 30 (2010) 178–185
a monopoly market to remain profitable. This implies that entry
of a second office causes a substantial increase in competition.
Nevertheless, we find no significant difference between the entry
thresholds ratios over the years, implying that the level of com-
petition in 2004 is not significantly different from the level of
competition in 1995. Although we cannot disentangle the effects
of the reform on the level of competition from other unobserved
effects, this result is still striking as we expected the partial
deregulation of the notary market to have an impact on our entry
threshold ratios. Nevertheless, a close look at the developments in
the Dutch notary market shows that unchanged entry thresholds
ratios are in line with the sluggishness of entry over the last years
despite the regulatory reform. The low level of entry may be due to
the fact that there are still institutional barriers, such as the busi-
ness plan for instance, that restrain entry or that junior notaries
have become more risk adverse in a new liberalized environment.
In addition, the profession may still be in a transition period.
In line of these results, our analysis suggests that there is
still room for increasing competition and entry in the Dutch
notary profession. If entry remains low, Dutch policymakers should
evaluate the advantages of preserving certain anti-competitive reg-
ulations notably on the quality of services. Quality is a central
issue and several reports have shown that it may be recently put
at risk (Commissie Hammerstein, 2005; Nahuis & Noailly, 2005).
Therefore, policymakers should first favor options that stimulate
competition without being harmful to quality. A first step could be
a careful evaluation of the role of the mandatory business plan and
the interdiction to specialize. At first sight, the costs of these reg-
ulations in terms of competition may be greater than the benefits
in terms of quality. Regarding the professional monopoly of Dutch
notaries, however, the question is whether allowing the entry of
paraprofessionals would seriously endanger quality. A priori, the
risk is likely to be greater in that case than for the removing of the
business plan and the interdiction to specialise.
Future work on measuring competition in the Dutch notary mar-
ket should focus on the developments of prices and costs of notary
services after the regulatory reform when these data become more
widely available.
Acknowledgements
We wish to thank Paul Grout, Frank Verboven, Catherine Schau-
mans, George Gelauff and Casper van Ewijk for useful comments
and helpful suggestions. We are also grateful to Jeannette Ver-
bruggen and Ali Aouragh for outstanding research assistance.
Finally, we also thank the Royal Dutch Notarial Society, the Dutch
Land Registry and Statistics Netherlands for providing the data. This
research project was initiated by Richard Nahuis, who passed away
in December 2005. This article was written in his memory.
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