26(40)
If
, competition has a negative effect on prices for both kinds of
services. However, up to the point where
, the negative effect is larger
for first-stage services. Note that if
the average effect of competition
on prices
, does not vary across services and hence
is not identified.
From (8), we get
and by rearranging, we get:
By plugging in values for
we can back out the implied
(and
). Figure
1 plots the simulation results for
and
from the estimate of
for
“Tooth extraction” versus “Basic Examination & Diagnostics”. Figure 2 plots
the results for “Tooth extraction” versus “Full examination, performed by
dental hygienist”. The figures shows the implied values for
and
, for
.
Figur 1.
Policy simulation: Tooth extraction vs. Basic Examination &
Diagnostics, performed by dentist.
