In antitrust literature and practices, totally opposite viewpoints on the issue of impact of territory restriction on market competition have been existing for a long time. The Chicago school considers that the formation of territory restriction is to prevent free riders in the distribution and marketing stage. Allocation efficiency can, thus, be enhanced by territory restriction. In contrast, the Classical School sees that territory restriction causes firms to collude. This in turn would decrease competition degree of the market. To empirically investigate these opinions, this study first proposes testable working hypotheses corresponding these opinions, then use data of Taiwan's pharmaceutical industry to perform the tests. The results show that territory restriction in Taiwan's pharmaceutical industry supports the efficiency hypothesis proposed by the Chicago School.