Doctors´ remuneration schemes and hospital competition in two-sided markets with common network externalities
AbstractABSTRACT: This paper uses a two-sided market model of hospital competition to study the implications of different remunerations schemes on the physicians'side. The two-sided market approach is characterized by the concept of common network externality (CNE)introduced by Bardey et al. (2010). This type of externality occurs when occurs when both sides value, possibly with different intensities, the same network externality. We explicitly introduce effort exerted by doctors. By increasing the number of medical acts (which involves a costly effort) the doctor can increase the quality of service offered to patients (over and above the level implied by the CNE). We first consider pure salary,capitation or fee-for-service schemes. Then, we study schemes that mix fee-for-service with either salary or capitation payments. We show that salary schemes (either pure or in combination with fee-for-service) are more patient friendly than (pure or mixed)capitations schemes. This comparison is exactly reversed on the providers'side. Quite surprisingly, patients always loose when a fee-for-service scheme is introduced (pure of mixed). This is true even though the fee-for-service is the only way to induce the providers to exert effort and it holds whatever the patients'valuation of this effort. In other words, the increase in quality brought about by the fee-for-service is more than compensated by the increase in fees faced by patients.
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Bibliographic InfoPaper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 008848.
Date of creation: 01 Aug 2011
Date of revision:
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Two-Sided markets; Common Network Externality; Providers'remuneration schemes.;
Other versions of this item:
- Bardey, David & Cremer, Helmuth & Lozachmeur, Jean-Marie, 2011. "Doctors' remuneration schemes and hospital competition in two-sided markets with common network externalities," TSE Working Papers, Toulouse School of Economics (TSE) 11-250, Toulouse School of Economics (TSE), revised Jul 2011.
- Bardey, David & Cremer, Helmuth & Lozachmeur, Jean-Marie, 2011. "Doctors' remuneration schemes and hospital competition in two-sided markets with common network externalities," IDEI Working Papers, Institut d'Ãconomie Industrielle (IDEI), Toulouse 628, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2011.
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-09 (All new papers)
- NEP-COM-2011-08-09 (Industrial Competition)
- NEP-CSE-2011-08-09 (Economics of Strategic Management)
- NEP-HEA-2011-08-09 (Health Economics)
- NEP-NET-2011-08-09 (Network Economics)
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