Why do retail pharmacies violate the law? : an empirical study from northeastern China

Abstract

In China, most retail pharmacies comply poorly with the law. Drawing on empirical data obtained in Northeast China, this thesis delves into the motivation behind retail pharmacies’ compliance, revealing the dominance of social norms. It also highlights the reciprocal influence between the law and social norms and presents alternative approaches to tackling the issue of unlawful retail pharmacy operations.

The research uncovers the prominent role played by social norms which are influenced by both cultural and institutional factors. The cultural factors comprise the significant influence of traditional Chinese medicine, limited familiarity with Western medicine, as well as anecdotal information and personal experiences. The institutional factors relate to China’s flawed medical system, which is marked by unaffordable and inaccessible hospitalization, low reimbursement rates offered by medical insurance, and the persistent problem of medication scarcity and high prices. Together, these factors shape the norms surrounding medication practices. Motivated by these prevailing norms, retail pharmacies redefine the nature of drugs and their distribution, often disregarding legal regulations.

This case study provides an opportunity to examine the interplay between the law and social norms. By comparing China’s drug retailing practices with existing empirical cases, this thesis introduces a two-by-two matrix that illustrates four distinct circumstances: confrontation, compromise, coevolution, and coexistence. This typology sheds light on the dynamic relationship between rigid and flexible laws and established and emerging social norms.

This research challenges prevailing assumptions in scholarship that suggest that business decision making is based solely on a cost–benefit analysis of obeying or violating the law. It proposes that enhancing the punishment for violations may not effectively deter illegal retail pharmacies and that legislation and enforcement with social significance would be a more impactful approach. This perspective carries implications not only for China but also for other developing countries facing low compliance rate.