Page 173 - DECO101_MICRO_ECONOMICS_ENGLISH

Micro Economics

Notes

Case Study Medical Monopoly
on-physician providers of medical care are in high demand in the United States.
But licensure laws and federal regulations limit their scope of practice and restrict
Naccess to their services. The result has almost unavoidably been less choice and
higher prices for consumers.

Safety and consumer protection issues are often said to be the reasons for restricting
non-physician services. But the restrictions appear not to be based on experimental fi ndings.
Studies have repeatedly shown that qualified non-physician providers – such as midwives,

nurses, and chiropractors – can perform many health and medical services traditionally
performed by physicians – with comparable health outcomes, lower costs, and high patient
satisfaction.
Licensure laws appear to be designed to limit the supply of health care providers and
restrict competition to physicians from non-physician practitioners. The primary result is
an increase in physician fees and income that drives up health care costs.
At a time government is trying to cut health spending and improve access to health care, it
is important to examine critically the extent to which government policies are responsible
for rising health costs and the unavailability of health services. Eliminating the roadblocks
to competition among health care providers could improve access to health services, lower
health costs, and reduce government spending.
Question

Analyse the possible factors that have lead to this kind of situation.
Source: www.cato.org/pub_display.php?pub_id=1105

11.5 Price Discrimination under Monopoly

A seller indulges in price discrimination when he sells the same product at different prices
to different buyers. Price discrimination is ‘personal’ when different prices are charged from
different persons, ‘local’ when different prices are charged from people living in different
localities, and ‘according to use’ when, for example, higher rates are charged for commercial use
of electricity as compared to domestic use.
Price discrimination is possible when the seller is able to distinguish individual units bought by
single buyer or to separate buyers into classes where resale among classes is not possible.
Thus, price discrimination is possible in case of personal services of doctors and lawyers. It is also
possible when markets are too distant or are separated by tariff barriers. There may be a legal
sanction for price discrimination as in the case of electricity charges from domestic and industrial
users. It is also possible when some people are prejudiced against a particular market and prefer
a posh market or when some people are too lethargic to move away from the nearest shopping
centre.

Case 1: Equilibrium under Price Discrimination

A monopolist firm sells a single product in two different markets either different elasticities of

demand. Resale among the customers is not possible. The firm has to decide how much total
output should be produced and how it should be distributed between sub-markets and what
prices should be charged in the two sub-markets. It is assumed that production takes place at the
same point.

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