Pauly M, (2004)

‘Competition in Medical Services and the Quality of Care:
Concepts and History’

International Journal of Health Care Finance & Economics, 4(2):113-30

• Reviews the concept of optimal quality in medical care from an economic viewpoint. Discusses how competition among suppliers affects both the incentive structures for quality and the levels of quality finally achieved.
• Quality may be suboptimal either because of technical inefficiency in the production of quality or because consumers fail to make proper choices.
• Pauly demonstrates that, with regard to the effect of competition on quality almost anything can happen:·
  • Quality can either rise or fall
  • Price or cost can either rise or fall
  • BUT quality cannot fall and price rise.
• That is, it is not economically correct to say that competition will “maximise quality”, or even that it will necessarily improve quality in a market, compared to less competition. It is correct to say that competition will make informed consumers better off in unfettered markets.

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