Hen 368 lecture 10 markets

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Hen 368 lecture 10 markets

  1. 1. Health EconomicsLecture 10Physician, Hospital, andPharmaceutical Markets
  2. 2. PerfectCompetitionMonopolisticCompetitionOligopoly MonopolyNumber ofFirmsMany Many Few OneType of Product Identical Different Similar UniqueEase of Entry Easy Easy Substantial BlockedDemand D = MR DynamicGameTheoryD > MRExamplesCommoditiesRiceApplesCell Phones UtilitiesGovernmentMarket Structure and Power0% 100%
  3. 3. EddieWillieBetraysWillie1YearSilentSilentBetraysEddie1YearEddieGoes FreeWillie10YearsWillieGoes FreeEddie10YearsWillie5YearsEddie5YearsPrisonersDilemma
  4. 4. Prisoners DilemmaPursuing the Dominant StrategyResults in Non-Cooperationand Leaves EveryoneWorse Off
  5. 5. Game TheoryRulesStrategiesPayoffs
  6. 6. John Nash(1928 - )Game TheoryNash EquilibriumNobel 1994A Beautiful Mind
  7. 7. DuoployTwo Sellers
  8. 8. 50 SR100 SRVerizon1,000100 SRAT&T1,00050 SRVerizon500Verizon2,000Verizon700AT&T2,000AT&T500AT&T7001. Reduce Price2. Sell more3. Increase profit
  9. 9. Physician MarketAsymmetric InformationJustifies GovernmentInterventionProtect the Public
  10. 10. Barriers to EntryEducationResidencyLicensing
  11. 11. QuantityPricePhysician MarketDemandSupplyQ2P2Q1P11. ReduceSupply2. IncreasePrice3. ReduceQuantity
  12. 12. Can the Market do a better jobof weeding-out incompetentphysicians than theGovernment?IncentivesBureaucrats vs. EntrepreneursWho decides?
  13. 13. Market IncentivesMedical LiabilityFor-Profit ProvidersBrand NamesEmployed Physicians
  14. 14. Government IncentivesBad reward for bad physiciansNo rewards for good physiciansBribesCannot be held liable - suedUnseen
  15. 15. Optimal Practice SizeEconomies of scale3 - 7 physicians
  16. 16. Supplier-Induced DemandDemandSupplyQ2P2Q1P11. Increase Demand 2. Increase Price 3. Increase Quantity
  17. 17. Malpractice InsuranceCompensateVictimsDeter MalpracticeDefensive Medicine

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