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Consequences of Price Discrimination in Health Care
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Journal Article
Consequences of Price Discrimination in Health Care
2021
Overview
Too frequently, policy makers misinterpret economic principles, leading them to misguided policy, often resulting in harmful consequences. It is argued herein that such a situation exists with respect to the belief that perfect price discrimination can occur without social cost and that it should be tolerated in the nation’s healthcare system. The following explains the belief, why it is misapplied, potential signifcant nationally harmful consequences, and what can be done. According to standard economic analysis (Grinols, Microeconomics, 1994, p. 317; Henderson, Health Economics and Policy, 8e, forthcoming; Mankiw, Principles of Microeconomics, 8e, 2018, p. 302), the actions of a proft-maximizing monopolist result in dead-weight loss that represents inefciency and social cost. Higher degrees of price discrimination increase proft to the monopolist (choices are nested under frst-, second-, and third-degree price discrimination), generally with greater social cost. Katz (Review of Economic Studies, 1983) derives conditions under which the decrease in local output reduces welfare. Any number of standard microeconomics texts claim that a perfectly price-discriminating monopolist is possible without social cost (e.g., Browning and Zupan, Microeconomics, 12e, 2015, p. 308; Mankiw, Principles of Economics, 8e, 2018; Samuelson and Nordhaus, Economics, 19e, 2010, p. 209; Varian, Intermediate Microeconomics, 9e, 2020).
Publisher
Springer Nature B.V
Subject
