The hospital as a sales-maximizing entity

Abstract

This paper extends the Baumol sales-maximization theory to the not-for-profit hospital industry. Hospital demand is modeled as a function of both price and the number of physicians affiliated with a hospital. The latter variable results in interdependency of demand among the products offered by a hospital. The broader the product scope, the greater the number of affiliated physicians, and, therefore, the greater the demand for each of the hospital's products. Hospital competition is focused on the physician rather than the consumer (patient), as hospitals vie to maintain their market share.