Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Thursday, September 22, 2011

Doctors’ remuneration schemes and hospital competition in two-sided markets with common network externalities

Posted by D. Daniel Sokol

David Bardey (University of Rosario) Helmuth Cremer (Toulouse School of Economics) and Jean-Marie Lozachmeur (Toulouse School of Economics) describe Doctors’ remuneration schemes and hospital competition in two-sided markets with common network externalities.

ABSTRACT: This paper uses a two-sided market model of hospital competition to study the implications of different remunerations schemes on the physicians'side. The two-sided market approach is characterized by the concept of common network externality (CNE)introduced by Bardey et al. (2010). This type of externality occurs when occurs when both sides value, possibly with di¤erent intensities, the same network externality. We explicitly introduce e¤ort exerted by doctors. By increasing the number of medical acts (which involves a costly e¤ort) the doctor can increase the quality of service o¤ered to patients (over and above the level implied by the CNE). We first consider pure salary,capitation or fee-for-service schemes. Then, we study schemes that mix fee-for-service with either salary or capitation payments. We show that salary schemes (either pure or in combination with fee-for-service) are more patient friendly t! han (pure or mixed)capitations schemes. This comparison is exactly reversed on the providers'side. Quite surprisingly, patients always loose when a fee-for-service scheme is introduced (pure of mixed). This is true even though the fee-for-service is the only way to induce the providers to exert e¤ort and it holds whatever the patients'valuation of this effort. In other words, the increase in quality brought about by the fee-for-service is more than compensated by the increase in fees faced by patients.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/09/doctors-remuneration-schemes-and-hospital-competition-in-two-sided-markets-with-common-network-exter.html

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