The fee schedule is an entry rule: Ad valorem tariffs and market structure in Portugal's notarial reform

In many countries, certain professional services are treated as public goods, protected by the government to ensure they are available to everyone, even in small towns where they might not be profitable. Notaries, the officials who verify legal documents like property sales and wills, often fall into this category. For a long time, these roles were held by civil servants. However, in the early 2000s, Portugal decided to change this system, allowing private individuals to run these offices while keeping strict government rules on how many offices could exist in each town and how much they could charge. This created a unique laboratory for researchers: a system where the number of providers is fixed by a central authority, but the rules for how much money they can make depend on the value of the transactions they handle. The central question for economists is how these rules shape the market. Does the government's control simply limit the number of offices, or does the way fees are calculated actually decide which towns get a single private owner and which get a competitive market with several offices?

A researcher set out to answer this by looking at the real-world data from Portugal's 278 mainland towns over a ten-year period, specifically comparing the situation in 2009 and 2019. They wanted to see if the rules were working as intended and whether the market structure was stable or shifting. Their investigation revealed that the rules governing fees are just as powerful as the rules governing the number of licenses. In this system, the government sets a maximum fee for notarizing a property sale, but that fee is not a flat rate; it is a percentage of the property's value. This means that notarizing a million-euro mansion generates significantly more revenue for the notary than notarizing a modest home, even though the work involved might be similar. Because the government caps the percentage, the total income a notary can earn in a town is directly tied to the total value of the property deals happening there.

The researcher found that the government's entry rules were indeed strict. To open a second private notary office in a town, the local market needed to be more than four times larger than the market required to support the first office. This suggests that the government is very careful about allowing competition, only permitting it in the largest, busiest towns. However, when they compared this strictness to the Netherlands, a country that had fully liberalized its notary market and removed all caps on the number of offices, they found a surprising result. The Portuguese system, despite its quotas, was not actually more restrictive than the Dutch system. In the Netherlands, a second office also required a market more than two and a half times larger than the first to be viable. This finding challenges the common belief that a high number required for a second entrant automatically means the rules are overly restrictive; in this case, the market itself, driven by the fee structure, naturally limits competition just as much as the government's quotas do.

The most striking discovery, however, was how the relationship between demand and market structure changed over the decade. In 2009, the pattern followed the expected logic: towns with a high volume of transactions were more likely to have competitive markets with multiple offices, while towns with fewer transactions tended to have a single private monopoly. But by 2019, the ordering of this relationship had reversed. The towns with the highest volume of transactions were now the ones most likely to have a single private monopoly, while the competitive markets showed lower predicted probabilities at the upper end of the activity scale compared to intermediate levels. This shift happened because the fee structure creates a powerful incentive. Since the revenue is tied to the value of the property, a single notary in a wealthy, high-activity town can capture all the high-value deals. If a second notary enters, they split that revenue, making it harder for both to survive. Consequently, the most profitable towns became the most attractive for a single dominant player to hold onto, effectively crowding out competition in the very places where one might expect it to thrive.

The study also showed that the volume of transactions and the value of the properties act as substitutes rather than partners in this system. In a town with low property values, having a high number of transactions is the key factor that makes a private monopoly likely. But in a town with high property values, the sheer number of transactions matters much less; the high value of the deals alone is enough to sustain a single office. This means that the fee schedule does more than just set prices; it actively sorts the market. It pushes private monopolies toward wealthy, high-value jurisdictions and leaves competitive markets to function in areas where the property values are lower. The researcher concluded that under a binding fee cap, the fee schedule and the entry rule are the same instrument. A regulator who adjusts only the number of licenses is operating one of two levers. The way fees are calculated ultimately decides who gets to serve which town, proving that in regulated professions, the price tag is just as important as the permission slip.