Download Health care market: the competitive market

Health care market: the competitive
market
Guochang Zhao
RIEM, SWUFE
Week 9, Spring 2015
May 5, 2015
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Guochang Zhao
RIEM, SWUFE
Health care market: competitive market
The perfect competitive market
In a perfect competitive market, there are many sellers
possessing tiny market shares, a homogenous product, no
barriers to entry, and consumers have perfect information.
Health care market:
The nonprofit status of medical firms means that healthcare
providers may not pursue maximum economic profit;
Licensure creates a barrier to entry and decreases potential
competition;
Consumers typically lack perfect information about prices
and tech. aspects of medical services.
The competitive market may be still useful:
Supply and demand, which are based on perfect
competition, are useful in determining the impacts of
market changes on price and output;
Healthcare markets may be reasonably competitive so
supply and demand frameworks are appropriate.
The perfectly competitive market can be a benchmark.
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Guochang Zhao
RIEM, SWUFE
Health care market: competitive market
Supply sects
andsupply
demand
or where quantity demanded equals quantity sup-
and output of the drug are at the point where demand inter-
others bes
unaffected
By definition,
equilibrium
when there
no
Inplied.
a competitive
market,
all theoccurs
participants
are is
price
tendency to change. At P0, consumers are willing and able to
takers.
Compara
The dema
The market clearing process occurs when the marginal how surpl
private benefit (MPB) equals the marginal private cost and to stu
FIGURE 9-1 Supply and demand
services in
(MPC) and the price (P): MPB=P=MPC.
Price
A
MPC
E
P0
B
MPB
0
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Guochang Zhao
q
Quantity
RIEM, SWUFE
Health care market: competitive market
amines ho
tions of
equilibriu
supply cu
by compa
be used to
dict future
Sever
tastes, inco
affect the
factors su
producers
profits in various markets occur. For example, because there are
Comparative static
SUMM
Price
Comparative static analysis examines how changes in market In this c
Perfect
conditions
influence
positionsstatics
of the demand and supply
FIGURE
9-2 the
Comparative
curves and cause the equilibrium price and quantity to change. ers and
riers to
inform
A
that a p
MPC0 (S0)
ciently
those e
MPC1 (S1)
E0
exist. A
P0
mizatio
F
P1
E1
B
MPB (D0)
0
q1
q0
Quantity
K
■
4/5
Guochang Zhao
RIEM, SWUFE
Health care market: competitive market
Market entry and exit
In a competitive market, firms can enter for exit the
market freely.
Profits serve as an important incentive mechanism and
bring about an efficient allocation of resources in the long
run.
When long run normal profits exist in a perfectly
competitive industry, the market is in long run equilibrium,
with firms having no incentive to enter or exit the industry.
Long run entry in response to excess profits can be treated
as shifting the short run supply curve to the right; long run
exit causes the short run supply curve to shift to the left.
5/5
Guochang Zhao
RIEM, SWUFE
Health care market: competitive market