Supplier-Induced Demand and Quality Competition: An Empirical Investigation
The observable difference between "demand inducement" and "promotion" or "sales" is subjective and difficult to measure. Demand inducement has a pejorative connotation and is usually associated with significant asymmetric information. The evidence supporting the supplier-induced demand hypothesis in medicine is consistent with an alternate, more competitive hypothesis. Increasing competition may lead to higher service quality. If so, one could find a positive correlation between fees for service and the number of physicians in the community. This paper contains an empirical model that helps discriminate between these two competing hypotheses. We also provide empirical evidence on the role of income effects in the supplier induced demand debate suggested recently by McGuire and Pauly .
Volume (Year): 21 (1995)
Issue (Month): 4 (Fall)
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