Gatekeeping in health care

We study the competitive effects of restricting direct access to secondary care by gatekeeping, focusing on the informational role of gatekeeping general practitioners (GPs). We consider a secondary care market with two hospitals choosing the quality and specialisation of their care. GPs perfectly observe the diagnosis of a patient and the exact characteristics of the secondary care market. Patients are either informed or uninformed when accessing the hospital market. We consider two distinct cases: first, we let the fraction of informed patients be exogenous, implying that the regulator can only influence patients' decision of consulting a GP by making this compulsory ('direct gatekeeping'). Second, we endogenise this fraction by assuming GP consultation to be costly for the patient. Then the reulator can influence the GP attendance rate through the regulated price ('indirect gatekeeping'). A main finding of the paper is that strict gatekeeping may not be socially desirable, even if it is costless.Gatekeeping; Imperfect information; Quality competition; Product differentiation; Price regulation

Private Versus Public Health Care in a National Health Service

This paper study the interplay between private and public health care in a National Health Service. We consider a two-stage game, where at stage one a Health Authority sets the public sector wage and a subsidy to (or tax on) private provision. At stage two physicians decide how much to work in the public and the private sector. We characterise different equilibria depending on the Health Authority's objectives, the physicians' job preferences, and the cost efficiency of private relative to public provision of health care. We find that the scope for a mixed health care system is limited when physicians are indifferent between working in the public and private sector. Competition between physicians triggers a shift from public provision towards private provision, and an increase in the total amount of health care provided. The endogenous nature of labour supply may have counter-intuitive effects. For example, a cost reduction in the private sector is followed by a higher wage in the public sector.health care, mixed oligopooly, physicians

Direct-to-Consumer Advertising in Pharmaceutical Markets

We study effects of direct-to-consumer advertising (DTCA) in a market with two pharmaceutical firms providing horizontally differentiated (branded) drugs. Patients varying in their susceptability to medication are a priori uninformed of available medication. Physicians making the prescription choice perfectly identify a patient’s most suitable drug. Firms promote drugs to physicians (detailing) to influence prescription decisions and, if allowed, to consumers (DTCA) to increase the awareness of the drug. The main findings are: Firstly, firms benefit from DTCA only if prices are regulated. On the one hand, DTCA reduces the physicians’ market power and thus detailing expenses, while, on the other, it triggers price competition as a larger share of patients are aware of the alternatives. Secondly, under price regulation DTCA is welfare improving as long as the regulated price is not too high. Under price competition, DTCA is harmful to welfare unless detailing is wasteful and the drugs are poor substitutes.Advertising; Pharmaceuticals; Oligopoly

Direct to Consumer Advertising in Pharmaceutical Markets

We study effects of direct-to-consumer advertising (DTCA) in the prescription drug market. There are two pharmaceutical firms providing horizontally differentiated (branded) drugs. Patients differ in their susceptibility to the drugs. If DTCA is allowed, this can be employed to induce (additional) patient visits. Physicians perfectly observe the patients' type (of illness), but rely on information to prescribe the correct drug. Drug information is conveyed by marketing (detailing), creating a captive and a selective segment of physicians. First, we show that detailing, DTCA and price (if not regulated) are complementary strategies for the firms. Thus, allowing DTCA induces more detailing and higher prices. Second, firms benefit from DTCA if detailing competition is not too fierce, which is true if investing in detailing is sufficiently costly. Otherwise, firms are better off with a ban on DTCA. Finally, DTCA tends to lower welfare if insurance is generous (low copayments) and/or price regulation is lenient. The desirability of DTCA also depends on whether or not the regulator is concerned with firms' profit.marketing, pharmaceuticals, oligopoly

Direct-to-Consumer Advertising in Pharmaceutical Markets

We study effects of direct-to-consumer advertising (DTCA) in a mar- ket with two pharmaceutical firms providing horizontally dierentiated (branded) drugs. Patients varying in their susceptability to medication are a prioriuninformed of available medication. Physicians making the prescription choice perfectly identify a patient's most suitable drug. Firms promote drugs to physicians (detailing) to influence prescription decisions and, if allowed, to consumers (DTCA) to increase the awareness of the drug. The main Þndings are: Firstly, Þrms beneÞt fromDTCAonlyif prices are regulated. On the one hand, DTCA reduces the physicians™ market power and thus detailing expenses, while, on the other, it triggers price competition as a larger share of patients are aware of the alternatives. Secondly, under price regulation DTCA is welfare improving as long as the regulated price is not too high. Under price competition, DTCA lowers welfare unless detailing is wasteful and the drugs are poor substitutes.Advertising; Pharmaceuticals; Oligopoly

Bilateral monopolies and location choice

We analyse how equilibrium locations in location-price games à la Hotelling are affected when firms acquire inputs through bilateral monopoly relations with suppliers. Assuming a duopoly downstream market, we consider the case of two independent input suppliers bargaining with both downstream firms. We find that the presence of input suppliers changes the locational incentives of downstream firms in several ways, compared with the case of exogenous production costs. Bargaining induces downstream firms to locate further apart, despite the fact that input prices increase with the distance between the firms. In the case of asymmetrical bargaining strengths, the downstream firm facing the stronger input supplier has a strategic advantage and locates closer to the market centre. Sequential location introduces a first-mover advantage which may be mitigated or reinforced, depending on whether or not it is the first mover that bargains with the stronger input supplier.Spatial competition; Location choice; Bilateral monopolies; Endogenous production costs.

Pharmaceutical Patents: Incentives for R&D or Marketing?

We analyse how a patent-holding pharmaceutical firm may strategically use advertising of existing drugs to affect R&D investments in new (differentiated) drugs, and thereby affect the probability distribution of future market structures in the industry. Within a fairly generalmodel framework, we derive exact conditions for advertising and R&D being substitute strategies for the incumbent firm and show that it may overinvest in advertising to reduce the incentive for an entrant to invest in R&D, thereby reducing the probability of a new product on the market. In a more specific setting of informative advertising, we show that suchoverinvestment incentives are always present, and that more generous patent protection implies that a larger share of the patent rent is spent on marketing, relative to R&D.marketing, Research & Development, pharmaceutical

Gatekeeping in Health Care

We study the competitive effects of restricting direct access to secondary care by gatekeeping, focusing on the informational role of general practitioners (GPs). In the secondary care market there are two hospitals choosing quality and specialisation. Patients, who are ex ante uninformed, can consult a GP to receive an (imperfect) diagnosis and obtain information about the secondary care market. We show that hospital competition is amplified by higher GP attendance but dampened by improved diagnosing accuracy. Therefore, compulsory gatekeeping may result in excessive quality competition and too much specialisation, unless the mismatch costs and the diagnosing accuracy are sufficiently high. Second-best price regulation makes direct regulation of GP consultation redundant, but will generally not implement first-best.gatekeeping, imperfect information, quality competition, product differentiation, price regulation

Competition and Waiting Times in Hospital Markets

This paper studies the impact of hospital competition on waiting times. We use a Salop-type model, with hospitals that differ in (geographical) location and, potentially, waiting time, and two types of patients; high benefit patients who choose between neighbouring hospitals (competitive segment), and low-benefit patients who decide whether or not to demand treatment from the closest hospital (monopoly segment). Compared with a benchmark case of regulated monopolies, we find that hospital competition leads to longer waiting times in equilibrium if the competitive segment is sufficiently large. Given a policy regime of hospital competition, the effect of incresed competition depends on the parameter of measurement: Lower travelling costs increase waiting times, higher hospital density redices waiting times, while the effect of a larger competitive segment is ambiguous. We also show that, if the competitive segment is large, hospital competition is socially preferrable to regulated monopolies only if the (regulated) treatment price is sufficiently higher.Hospitals, Competition, Waiting times

Quality and location choices under price regulation

In a model of spatial competition, we analyse the equilibrium outcomes in markets where the product price is exogenous. Using an extended version of the Hotelling model, we assume that firms choose their locations and the quality of the product they supply. We derive the optimal price set by a welfarist regulator and find that this (second-best) price causes over-investment in quality and an insufficient degree of horizontal differentiation (compared with the first-best solution) if the cost of investing in product quality, or the transportation cost of consumers, is sufficiently high. By comparing the case of price competition, we also identify a hitherto unnoticed benefit of regulation, namely improved locational efficiency. -- In einem räumlichen Wettbewerbsmodell untersuchen wir die Gleichgewichte, die sich bei exogen gegebenem Preis einstellen. In einem erweiterten Hotelling Modell unterstellen wir, dass die Firmen den Standort (Produktdifferenzierung) und die Qualität ihres Produktes wählen. Wir ermitteln den, aus der Sicht eines sozialen Planers, optimalen Preis. Es zeigt sich, dass dieser (zweitbeste) Preis im Vergleich zum effizienten Ergebnis zu einer Überinvestition in Qualität und zu einer unzureichenden Produktdifferenzierung führt, wenn die Qualitätskosten der Firmen oder die Transportkosten der Konsumenten hinreichend groß sind. Ein Vergleich mit dem Marktergebnis bei Preiswettbewerb offenbart einen bisher unbeachteten positiven Effekt der Preisregulierung, den verbesserten Grad der Produktdifferenzierung.Spatial competition,product quality,location,price regulation