Topic 7 Paper: (Richardson et al 2006)

Question 1

What does Richardson et al (2006) aim to investigate?

Answer 1

Whether like the US, the Australian market for doctors violates the law of supply

Question 2

Why is the Australian medical market unique?

Richardson et al 2006

Answer 2

• Three sectors, public, private in hospital & private out of hospital
• no constraint on fees

Question 3

How has the violation of the law of supply in the US doctors market been explained?
(Richardson et al 2006)

Answer 3

• Supply induced demand
• Pably & Sutterthwaite suggest increases in supply decrease information per doctor, make demand more inelastic
• Perverse US anomaly (joke)

Question 4

Explain & Critique supply induced demand theory (SID) with reference to the doctors market
(Richardson et al 2006)

Answer 4

• Theory is that doctors wish to maintain an income level, so when supply increases and they see less patients, they raise prices
• The Author argues that there are alternative explinations, that increased demand might be drawn from lower waiting times and other benefits of increased supply

Question 5

How does the article (Richardson et al 2006) test various hypothesis?

Answer 5

By considering bulk billing (BB) absolute, extra billing (EB as percentage of total billed) and price
Competition: increase in doctor supply will decrease price
Market segmentation: established doctors don’t need to compete, new doctors will bulk bill only. So BB will increase with supply, EB will remain the same
Compensation: increase in doctors supply will increase fees, and increases in BB will be offset by an increase in EB

Question 6

What results does Richardson et al (2006) show?

Answer 6

Increases in doctor supply for both GP & Specialists increases bulk billing, particularly for GP’s. Extra billing also increases.
Fees increase very slightly, but at a practically insignificant level

Question 7

What hypothesis does Richardson et al (2006) support?

Answer 7

The competitive model is resoundingly rejected. The market segmentation & SID model are not rejected. Some support for the market segmentation hypothesis

Question 8

What are the policy implications of Richardson et al (2006)?

Answer 8

Use of doctor supply as a policy tool on prices is pretty pointless