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Competition and Product Choice in Option Demand Markets

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  • Sorek Gilad

    (Economics Department, Auburn University, 0334 Haley Center, Auburn, AL 36849, USA)

Abstract

This work presents the first analysis of competition through horizontal and vertical differentiation in option demand markets, which are common in the health-care sector. I studied two alternative market structures: (a) a “pure” option demand market where medical providers sell insurance directly to consumers and (b) a public insurance regime where the public insurer bargains over prices with providers before bundling both products under a single insurance policy. I show that (a) product choices in option demand markets differ greatly from those in respective spot markets and (b) bundling medical products under a single insurance policy alters product choices and equilibrium prices in a way that does not benefit consumers.

Suggested Citation

  • Sorek Gilad, 2016. "Competition and Product Choice in Option Demand Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 785-805, April.
    • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:2:p:785-805:n:19
    DOI: 10.1515/bejeap-2015-0164
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    1. Sorek Gilad, 2016. "Competition and Product Choice in Option Demand Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 785-805, April.
    2. Sorek, Gilad, 2016. "Competition and consumer choice in option demand markets," Economics Letters, Elsevier, vol. 146(C), pages 13-16.

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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