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Monopolistic Competition and Costs in the Health Care Sector

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  • Ingmar Kumpmann

Abstract

Competition among health insurers is widely considered to be a means of enhancing efficiency and containing costs in the health care system. In this paper, it is argued that this could be unsuccessful since health care providers hold a strong position on the market for health care services. Physicians exert a type of monopolistic power which can be described by Chamberlin’s model of monopolistic competition. If many health insurers compete with one another, they cannot counterbalance the strong bargaining position of the physicians. Thus, health care expenditure is higher, financing either extra profits for physicians or a higher number of them. In addition, health insurers do not have an incentive to contract selectively with health care providers as long as there are no price differences between physicians. A monopolistic health insurer is able to counterbalance the strong position of physicians and to achieve lower costs.

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Bibliographic Info

Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 17.

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Date of creation: Nov 2009
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Handle: RePEc:iwh:dispap:17-09

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Keywords: health care system; monopolistic competition; health insurance; costs;

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