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Market Competition: Implications For Healthcare Policy In The United States

6967 words - 28 pages

Abstract: Market competition is the foundation of economics in western societies. However, the level of competitiveness varies in healthcare markets around the World. Many countries in the World, including the United States, have moved to infuse more market competition and less government involvement into their national healthcare systems. Evidence is provided in this paper to suggest that a public healthcare policy based solely on traditional market competition may be detrimental to the social welfare of citizens in the United States.IntroductionOver the past few decades competition in the United States (US) healthcare market has increased, with a trend toward less government involvement. This paper will provide a background of the traditional models of competition, describe critical assumptions of competitive markets, and describe conclusion of these assumptions to healthcare policy in the US. This paper posits that economic theory does not provide strong justification for the superiority of competitive market policies in the health care area. This is because the competitive model is based on certain important assumptions that, we argue, do not appear to be met.1. The traditional economic model1.1 ConsumerIn the consumer theory, people tend to maximize their utility, which can be determined by the bundle of goods and services that they possess and acquire. These services and goods are bought according to consumer's desires, tastes and prices of alternative goods, all relative to how much income a consumer can afford to spend. This utility is obtained by a consumer through the consumption of alternative quantities of different goods and services.As a person consumes more units of the same product or service they must obey the diminishing marginal utility principal. The principal states that a consumer will consume additional units of a product or service, up to a point where any additional unit of the good brings less utility than the previous unit of the same good consumed.Choosing how much one consumes depends not only on how much the consumer wants each type of good, but also on the price of the good or service. Consumers maximize utility by measuring the benefit acquired in such a way that the expenditure of each additional dollar should bring more utility than the previous expense. Cleary, the consumer comes to a point where the marginal utility of goods being purchased dictates how this dollar is going to be spent. The budget constraints of the consumer will determine what type and how much of a good or service can be purchased by the consumer, given their level of income.In summary, consumer theory is how people use their limited means to make purposeful choices. Consumer theory assumes that all consumers take into account their own preferences, the product's market prices, and how they can and will make choices to fulfill their advantage. When consumers reach the point where they cannot do any better either by...

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