A Model of Physician Pricing : Comment and Reply.

by Joseph P. Newhouse, Frank A. Sloan

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Two econometric models are devised to judge the market for physicians' services: one, monopolistic, with factors of consumer price ignorance and inability to judge quality of product received; the other, with set price from intersection of supply and demand curves, as in a competitive market. The authors determine that market pricing for physicians' services is monopolistic rather than competitive. Critics complained that the models were in error, were inconsistent, and that price was positively related to demand whether physician pricing is monopolistic or competitive. In reply, the authors state that, while it may be difficult to distinguish among these hypotheses empirically, the general thrust of the evidence shows that the amount of price dispersion, the low price elasticities, the apparent unresponsiveness of price to insurance coverage, and the age composition of the population all point to a noncompetitive market. 38 pp. Ref.

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