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Supplier-Induced Demand and Quality Competition: An Empirical Investigation

Author

Listed:
  • W. David Bradford

    (University of New Hampshire)

  • Robert E. Martin

    (University of Texas, Arlington)

Abstract

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 [1991].

Suggested Citation

  • W. David Bradford & Robert E. Martin, 1995. "Supplier-Induced Demand and Quality Competition: An Empirical Investigation," Eastern Economic Journal, Eastern Economic Association, vol. 21(4), pages 491-503, Fall.
  • Handle: RePEc:eej:eeconj:v:21:y:1995:i:4:p:491-503
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume21/V21N4P491_503.pdf
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    References listed on IDEAS

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    1. George J. Stigler, 1951. "The Division of Labor is Limited by the Extent of the Market," Journal of Political Economy, University of Chicago Press, vol. 59, pages 185-185.
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    Cited by:

    1. LĂ©onard, Christian & Stordeur, Sabine & Roberfroid, Dominique, 2009. "Association between physician density and health care consumption: A systematic review of the evidence," Health Policy, Elsevier, vol. 91(2), pages 121-134, July.
    2. De Jaegher, Kris & Jegers, Marc, 2000. "A model of physician behaviour with demand inducement," Journal of Health Economics, Elsevier, vol. 19(2), pages 231-258, March.

    More about this item

    Keywords

    Medicine; Physician; Physicians;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations

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