Question

Describe perfect competition as it relates to health care economics. What are the key characteristics? Does perfect competition provide an advantage or disadvantage to the consumer? To the health care provider/organization? Provide an example of perfect competition within health care.

Answer 1

Perfect competition in Healthcare economics:

Healthcare economics is the study of Allocation, distribution and consumption healthcare resources .

Perfect competition is a theoretical market structure in which there is an equal levels for all firms, involved in the industry . It is also called as pure competition or perfect market.  

Example: There are many Taco venders in front of a mall . All are selling the same type of Tacos , in quality and quantity, and in same prize. If someone want sell Tacos, he can also open a shop for that in the same street . No one can increase price as there is a standard price for Tacos. If any Tacos sellers want to stop his business, he can stop or start a new buisiness in any other area of street. Economists called this scenario as a Perfect competition as no individual control over prices here.

Key characteristics of Perfect competition:

* No individual control or no influence of market shares on prices.

* All firms sell a same product and they are prize takers .

* Firms have no barriers in entering or exiting the market.

* Sellers and buyers want to maximise the profit.

* No involvement of Government

* Knowledge is available to all buyers and sellers.

Advantage and Disadvantage:

* To the consumer:

Advantages ;

No chances of corruption as there is no secret on prices.

All the information related to goods including prices are shared equally.  

Disadvantages: No dominant market share for any firm, absence of innovative ideas , strategies, Firms can't charge a premium for their products

* To the health care provider:

Advantages;

No barriers to enter into market , no chances of monopoly.

No advertisements are needed as all goods or products are the same and the same information known by all providers as well as customers.  

* Resources are perfectly mobile

Disadvantages: Zero profit margins, No innovation , less cash to invest in new strategies.  

Example of Perfect competition within Healthcare: Usually Healthcare market is different from other economic markets , it can't maintain a Perfect competition. Even entry to the Healthcare market is restricted, as only licensed personnel can enter or provide certain health care.

Some of the countries regulated health care system in such a way that the providers can't change the cost for health services . For example : All ophthalomolgy consultation has a standard cost , hospitals can't change it according to their wishes. All procedures related to eye is same. It is an example for Perfect competition in Healthcare market.