Modelling the Demand for and Supply of Elective Surgery: A Duopoly Model

Abstract

In this paper I model the demand for and supply of elective surgery using a modified Hotelling framework in which waiting time, money and distance costs are determinants of the demand for hospital care. Hospitals compete with each other by varying supply and hence their waiting times. I consider both the situation where GPs do not hold a budget (and thus Health Authorities pay for health care), and the situation where they are given budgets to buy care for their patients. Waiting time increases when production of care becomes more expensive, when the benefit obtained from treatment increases, when the unit cost of distance decreases, and when the importance given to the delay by the hospitals decreases. Moreover, the higher the money price (and if greater than the marginal cost of producing hospital care) the lower the waiting time. If the money price paid by GP fundholders is higher than that paid by HAs, fundholding patients pay a lower time price.