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Market for Artificial Intelligence in Health Care and Compensation for Medical Errors

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  • Chopard, Bertrand
  • Musy, Olivier

Abstract

We study the market for AI systems that are used to help to diagnose and treat diseases, reducing the risk of medical error. Based on a two-firm vertical product differentiation model, we examine how, in the event of patient harm, the amount of the compensation payment, and the division of this compensation between physicians and AI system producers affects both price competition between firms, and the quality (accuracy) of AI systems. One producer sells products with the best-available accuracy. The second sells a system with strictly lower accuracy at a lower price. Specifically, we show that both producers enjoy a positive market share, so long as some patients are diagnosed by physicians who do not use an AI system. The quality of the system is independent of how any compensation payment to the patient is divided between physicians and producers. However, the magnitude of the compensation payment impacts price competition. Increased malpractice pressure leads to lower vertical differentiation, thus encouraging price competition. We also explore the effect of compensation on firms’ profits at equilibrium. We conclude by discussing our results with respect to the evolution of the civil liability regime for AI in healthcare.

Suggested Citation

  • Chopard, Bertrand & Musy, Olivier, 2022. "Market for Artificial Intelligence in Health Care and Compensation for Medical Errors," MPRA Paper 113328, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:113328
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    Cited by:

    1. Marie Obidzinski & Yves Oytana, 2022. "Prediction, human decision and liability rules, CRED Working paper No 2022-06," Working Papers hal-04034871, HAL.

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    More about this item

    Keywords

    Artificial Intelligence; Diagnostic; Duopoly; Liability; Physician; Compensation;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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