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Monopolistic Competition and Costs in the Health Care Sector

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  • Kumpmann, Ingmar

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.

Suggested Citation

  • Kumpmann, Ingmar, 2009. "Monopolistic Competition and Costs in the Health Care Sector," IWH Discussion Papers 17/2009, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:iwh-17-09
    as

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    References listed on IDEAS

    as
    1. Robert G. Evans, 1974. "Supplier-Induced Demand: Some Empirical Evidence and Implications," International Economic Association Series, in: Mark Perlman (ed.), The Economics of Health and Medical Care, chapter 10, pages 162-173, Palgrave Macmillan.
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    3. Sebastian Gechert, 2010. "Supplementary Private Health Insurance in Selected Countries: Lessons for EU Governments?," CESifo Economic Studies, CESifo Group, vol. 56(3), pages 444-464, September.
    4. Oecd, 2004. "Private Health Insurance in OECD Countries: The Benefits and Costs for Individuals and Health Systems," Financial Market Trends, OECD Publishing, vol. 2004(2), pages 125-197.
    5. Elizabeth Docteur & Hannes Suppanz & Jaejoon Woo, 2003. "The US Health System: An Assessment and Prospective Directions for Reform," OECD Economics Department Working Papers 350, OECD Publishing.
    6. Francesca Colombo & Nicole Tapay, 2004. "Private Health Insurance in OECD Countries: The Benefits and Costs for Individuals and Health Systems," OECD Health Working Papers 15, OECD Publishing.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    health care system; monopolistic competition; health insurance; costs; Gesundheitswesen; monopolistische Konkurrenz; Krankenversicherung; Kosten;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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