A further analysis of the physician inducement controversy.
This article extends several recent contributions that have compared the physician-induced demand hypothesis to the theory of a monopoly where advertising is included as a decision variable. By introducing a standard profit-maximizing model with inducement, it derives the conditions for the optimum level of inducement to show that the controversy over inducement is directly related to the elasticity of demand for the physician's services. In particular, inducement is likely to be prevalent only where the individual physician has a high degree of monopoly power as measured by its elasticity of demand. It will disappear entirely as competitive conditions are approached. Furthermore, the article argues that a physician's level of induced output is likely to diminish, and not increase as others have suggested, following increases in physician supply.
D000329:Advertising; D004465:Economic Competition; D006301:Health Services Needs and Demand; D006302:Health Services Research; D008962:Models, Theoretical; D010820:Physicians / Q000600:supply & distribution*