SFB 303 Discussion Paper No. A - 375
Author: Nett, Lorenz
Title: Negative Effects of Competition in a Medical-Service Market
Abstract: A market for medical care is characterized by uncertain, but inelastic
demand and a 'soft budget constraint'. We assume that in such a market,
government decides on giving licenses to different private institutions to
provide medical service. In this paper we present an argument as to why
competition has a negative effect on social welfare and therefore government
should only provide one license. We also explain why in such a market the
profit-maximizing institutions install too high a capacity in comparison to
a social optimum.
Creation-Date: August 1992
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