Spanish Funeral Practices – Limited Competition, More Opportunity

July 15, 2010
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If you thought being an undertaker was a dead-end business, think again. In Spain it?s pretty profitable. One important reason for that, according to a new report (in Spanish) commissioned by the economy and health ministries, is that there?s limited competition. Why?

Because it?s so hard to start a business, the report concludes.

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Fancy setting up as an undertaker in Madrid? Go ahead, but you?ll need a minimum of 12 vehicles. In Palma de Mallorca, you?d need eight and in Zaragoza six. In Barcelona, you?ll need at least 200 coffins; in Palma, you?re only required to have 100, and in Zaragoza a mere 60.

The 80-page report into the funeral business is a great case study. The restrictions on competition it describes are replicated, one suspects, across the economy. This is a concrete example what economists mean when they complain of the obstacles to the efficient allocation of resources in the Spanish economy.

The funeral business, it notes, is one with stable demand that is expected to rise gradually in coming years with the ageing of the population.

People only need the service on average every 12 to 15 years, so they are not well informed, and when demand arises it is immediate and unforeseen. The sellers are beneficiaries, in the jargon of economics, of asymmetrical information.

In Spain, half of the demand comes through insurance companies, because many people insure for burial costs.

There are 1,600 companies, 94% of which are small and medium sized business. Most are family businesses operating in localities where people don?t have much choice. In 49.3% of municipalities, there are fewer than two operators for each 100,000 inhabitants. In 21%, there?s a single provider and in Catalonia, most funeral companies are local monopolies.

Click here to read the rest of this article at the WSJ.com

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