Does the Provision of Physician Services Respond to Competition?

We assess the extent to which specialist physicians respond to local competition when deciding how much services to provide under a fee-for-service payment system. We use an exhaustive administrative panel data set of French physicians, and account for the dual nature of the regulatory environment, with part of the physicians being subject to price regulation. The activity of fee-regulated physicians depends only on their individual preferences, and is not affected by changes in their demand or competitive environment. By contrast, the prices charged by free-billing physicians decrease and their activity increases with physician density. Reaction functions are upward-slopping, with the quantities of services provided being strategic complements. Our findings are consistent with a static oligopoly model where the consumption-leisure preferences of doctors exhibit strong income effects.