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Hen 368 lecture 10 markets

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Health Economics Lecture 10 Physician, Hospital, and Pharmaceutical Markets
Perfect Competition Monopolistic Competition Oligopoly Monopoly Number of Firms Many Many Few One Type of Product Identical Different Similar Unique Ease of Entry Easy Easy Substantial Blocked Demand D = MR Dynamic Game Theory D > MR Examples Commodities Rice Apples Cell Phones Utilities Government Market Structure and Power 0% 100%
Eddie Willie Betrays Willie 1Year Silent Silent Betrays Eddie 1Year Eddie Goes Free Willie 10Years Willie Goes Free Eddie 10Years Willie 5Years Eddie 5Years Prisoner's Dilemma
Prisoner's Dilemma Pursuing the Dominant Strategy Results in Non-Cooperation and Leaves Everyone Worse Off
Game Theory Rules Strategies Payoffs
John Nash (1928 - ) Game Theory Nash Equilibrium Nobel 1994 A Beautiful Mind
Duoploy Two Sellers
50 SR 100 SR Verizon 1,000 100 SR AT&T 1,000 50 SR Verizon 500 Verizon 2,000 Verizon 700 AT&T 2,000 AT&T 500 AT&T 700 1. Reduce Price 2. Sell more 3. Increase profit
Physician Market Asymmetric Information Justifies Government Intervention Protect the Public
Barriers to Entry Education Residency Licensing
Quantity Price Physician Market Demand Supply Q2 P2 Q1 P1 1. Reduce Supply 2. Increase Price 3. Reduce Quantity
Can the Market do a better job of weeding-out incompetent physicians than the Government? Incentives Bureaucrats vs. Entrepreneurs Who decides?
Market Incentives Medical Liability For-Profit Providers Brand Names Employed Physicians
Government Incentives Bad reward for bad physicians No rewards for good physicians Bribes Cannot be held liable - sued Unseen
Optimal Practice Size Economies of scale 3 - 7 physicians
Supplier-Induced Demand Demand Supply Q2 P2 Q1 P1 1. Increase Demand 2. Increase Price 3. Increase Quantity
Malpractice Insurance CompensateVictims Deter Malpractice Defensive Medicine

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