Market structure and the role of consumer information in the physician services industry: an empirical test

Abstract

This paper applies Panzar and Rosse's (1987) econometric test of market structure to examine two long-debated issues: What is the market structure for physician services? Do more physicians in a market area raise the search cost of obtaining consumer information and increase prices (Satterthwaite, 1979, 1985)? For primary care and general and family practice physicians, the monopolistically competitive model prevailed over the competing hypotheses--monopoly, perfect competition, and monopolistic competition characterized by consumer informational confusion. Although less conclisive, there is some evidence to support the monopolistically competitive model for surgeons and the consumer informational confusion model for internal medicine physicians.