Question

Please explain in brief.

1. Why is the market for healthcare not like the market for Starbucks coffee?

2. Provide three characteristics that prevent health care markets from allocating resources efficiently?

3. What is Market failure?

Answer 1

1.Starbuck Coffee is a one of the prominent retailers of coffee products in United States with head office in Washington, USA. The company purchases finest grains of coffee from coffee manufacturers, makes different types of coffee beverages, pastries and coffee machines and sells them in different locations of USA as well as in foreign countries. Starbuck Coffee sells and markets its diversified product range in different parts of the world through its well-structured marketing networks. The company also aims to capture vast global market through franchises, joint ventures, superior advertisements and direct investment in different regions of the world. It also focuses on product quality, distribution and competitive pricing. Therefore, market for Starbuck Coffee is based on retail business of coffee beverages, pastries, ice-creams and non-food items such as coffee grinders, coffee vending machines and coffee storage containers.

Like Starbuck Coffee, Healthcare industry captures bulk of US market. The   Healthcare industry offers healthcare services to patients that include inpatient and outpatient care. Main thrust of majority of healthcare companies is earn maximum profits than offering affordable and quality medical services to the patients. The markets of Healthcare industry are uniform in all regions of the world. There is significant difference between the marketing of Healthcare industry and Starbuck Coffee where former is based on treatment and hospitalisation services to patients and later on procurement, processing, packaging and supply of coffee beverages and coffee related appliances in the retail markets across the world.

2. Healthcare industry is multi-billion dollars sector in USA providing healthcare services in different areas such as Cardiology, Radiology, /Orthopaedics etc. to individuals. However there are many characteristics that prevent Healthcare markets from efficient fund allocation to different healthcare segments:

Resource scarcity: Public health services in a country require heavy fund allocation. In United States, federal government runs ambiguous healthcare programme for all citizens in the country. However, funds for public health programme are collected through taxation that creates additional burden on the people.

Arbitrary pricing: Many private healthcare institutions unilaterally fixes prices for different health services, which are two high for poor and low income people. Even there is no government intervention in many countries to regulate the pricing system of the private hospitals.

Barriers to new entrants: Many healthcare markets are regulated by just few healthcare companies who form cartel group to restrict entry of new firm in the market. The main aim of these companies is to maximize profit and therefore do not take adequate care of patients during and after treatment.

3.Market failure is a situation in which market forces do not operate efficiently that results in loss of net social welfare value. There are several reasons behind market failure such as inefficient allocation of funds, non-existence of perfect competition and inequitable market supply of essential items.