Unveiling 'Invisible Hands': Two-Sided Platforms in Health Care Markets

35 Pages Posted: 12 Jul 2006

See all articles by Bronwyn E. Howell

Bronwyn E. Howell

Victoria University of Wellington - School of Management

Date Written: June 30, 2006


A popularly-held tenet in health economics is that, as a consequence of the presence of insurance subsidies for treatment costs, health care markets differ so significantly from hypothetical 'perfect competition' that competition and antitrust laws possibly should not be enforced in health care markets, or enforced differently in health care than in other markets. Drawing upon the principles of markets with two-sided platforms, which are similarly characterised by approaches to competition where welfare is maximised when prices differ from marginal cost, this paper develops an alternative taxonomy for thinking about institutional design and the application of competition principles in health care markets. The taxonomy separates out the aspects of health care markets that address the nonmarketability of the risk associated with an individual's uncertainty about demand for health care - the insurance 'platform' - from other information asymmetries attending the delivery of care. Comparison of the resulting taxonomy with the markets for other goods funded predominantly by insurance benefits (e.g. panelbeaters repairing crash-damaged vehicles) leads to the conclusion that it is predominantly the presence of insurance premium subsidies that leads to specific challenges in the design and operation of socially-optimal health care markets.

The taxonomy places 'two-sided' insurance platforms at the core of health care markets. The ensuing implication is that contractual and institutional design in the sector should reflect this defining characteristic. Whilst the nature of competition in health care provision markets still matters, it ensues from, and is secondary to, the nature of insurance market design. Deviations from the standard principles of competition in 'two-sided' insurance markets must therefore be analysed separately from competition in markets for health care service provision. Furthermore, these principles can be utilised independent of the ownership form of either the insurers or the care providers, and therefore provide guidance for both policy-makers designing health care markets, and regulators monitoring and enforcing sector performance.

Keywords: Health, Two-Sided Markets, Regulation, Antitrust

JEL Classification: I1, L2, L3, L4, L5

Suggested Citation

Howell, Bronwyn E., Unveiling 'Invisible Hands': Two-Sided Platforms in Health Care Markets (June 30, 2006). Available at SSRN: https://ssrn.com/abstract=913666 or http://dx.doi.org/10.2139/ssrn.913666

Bronwyn E. Howell (Contact Author)

Victoria University of Wellington - School of Management ( email )

Wellington 6001
New Zealand
+64 4 463 5563 (Phone)
+64 4 463 5566 (Fax)

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