A study by the Center for Studying Health System Change that will be released today shows that hospitals receive different prices for treating the same diseases. Center President Paul Ginsburg says this about the findings:
“The variation in hospital prices found in this study are (sic) inconsistent with highly competitive markets—at least for markets outside of health care,” said HSC President Paul B. Ginsburg, Ph.D.,
Hospital markets may not be highly competitive, but this argument is silly. One might as well say “The variation in automobile prices is (not “are”) inconsistent with highly competitive markets.” But one would be wrong in either case.
Vertical quality differentiation (i.e., some sellers are better than others) generates price dispersion in competitive markets. It is only in the most basic treatment of competition — in the first week of an intro economics course — that vertical differentiation is ignored. Observed price dispersion is not incompatible with competition.Continue reading…