Question

Provide/explain at least two clear examples in which health provider has information that is unavailable to health consumer. What is reputation good (provide one example for health care)?

Answer 1

The concept involved in this situation would be Asymmetric Information.

Asymmetric information refers to a market situation in which the intended "buyers" and "sellers" of the engaged goods / services do not have the same level of the information. In a perfect market, we assume both the buyers and sellers have same level of information about the quality of the goods dealt in the market but this type of perfect infomation is costly and time consuming to obtain,so,many a times, both parties do not have same quality infomation about goods sold.

The market we are here talking about is healthcare. Healthcare industry includes two parties, one is healthcare provider such as high professional doctors, health insurance providers, pharmacies and medical shops individuals. Another is healthcare consumers such as patients, families, health insurance buyers.

The examples of imperfect information that health providers can hold over health consumers are:

1) Professional doctors can screen medical information and terms pretty quickly because of their competent skills but due to asymmetric medical education between patients and doctors, a patient can believe pretty quickly the words said by the concerned doctors. Providers can keep manupulation level through this imperfect information and make an overwhelmed patient buy treatments that he sometimes do not require. This increases patient/ consumer cost / health expenditure and create an imperfect market where prices rise/fell and market equilibrium changes and so does market efficiency.

2) Healthcare product makers can manipulate or advertise a product according to their demands and current trends. Patients due to lack of medical knowledge or to reduce time waste/cost blindly buy these featured nutrients/ vitamins from pharmacies/ medical shops on the words of the people operating itor by looking at the tags on the product itself, thus making the market inefficient.

A reputation good is a good/product which has its own brand value among a large mass of people. A reputation good is one you would make a decision to buy or join service with after learning or hearing its positive reviews from your family and peers.

An example of reputation good can be a vitamins / nutrient that your peers recommend you after getting a good result from its usage. It could be a professional doctor that is a specialist in a particular field your family recommend you to at times of need or it could be a health insurance your relatives have a policy in, which gives you great maturity with less premium with other conditions mentioned.