9(40)
Secondly, a common approach has been to use zip-codes to create
measures of concentration or delineating markets by geopolitical boarders
(Dranove and Satterthwaite, 2000). Failing to take the actual distance
between providers into account may lead to either defining the market
as too narrow or too wide.
7
Thirdly, the endogeneity of market structure needs to be addressed
explicitly in order to estimate a causal effect of competition on prices.
8
Concerns about the endogeneity are common to
all
empirical approaches
to estimate the effect of concentration on prices (Gaynor and Town, 2011).
Attempts have been made to mitigate these concerns. However, they have
been focused on improving concentration measures by adding structure
9
rather than finding reduced-form approaches to identify the effect under
weaker assumptions. Furthermore, it is noteworthy that the literature on
the industrial organization of health care has moved away from reduced
form towards more structural approaches.
10
The market for dental care is arguably more similar to the market for
physician services than the hospital market. A patient consulting a
physician is generally looking to resolve uncertainty (Dranove and
Satterthwaite, 2000) rather than undergoing a certain treatment. This
also applies to dental care. Empirical work on competition and prices on
physician service markets is however very sparse
11
, mainly due to lack
of data. Instead, most part of the literature on physician service markets
has focused on issues concerning asymmetric information and agency in
the relationship between the patient and the physician (Gaynor and Town,
2011).
2.2
Economic studies on dental care
Very little economic research has been done on dental care and even less
on the effects of competition. The focus of previous studies has mainly
been on utilization and estimating demand elasticities. Estimates of income
and price elasticities generally has the expected signs, but vary in size
across studies.
12
Grytten and Sørensen (2000) studies the short-term effect of a
deregulation of the fee system for dental services in Norway. They find that
the mean expenditure per consultation is not related to dentists' subjective
7
Two providers can be in different zip-codes but still be very close to each other
and thus compete for the same patients. On the other hand
all
care givers in one
geographical area, say state, are not necessarily competing with each other.
8
As discussed by Capps and Dranove (2004), some of the previous studies use
cross-sectional data (e.g. Staten et al., 1988 and Melnick et al., 1992). Estimates
based on cross-sectional data cannot, in general, be given a causal interpretation
because of unobservable characteristics that may affect both concentration and
prices.
9
Kessler and McClellan (2000) construct a hospital-specific concentration measure
based on patients' choice of hospital as a function of travel distance. A similar
approach is used in Gowrisankaran and Town (2003).
10
It is noteworthy that the literature on the industrial organization of health care
has moved away from reduced form towards more structural approaches. This is
also true for the broader industrial organization literature. See Nevo and Whinston
(2010) for further discussion.
11
There are examples of more structural approaches to investigate market structure
and pricing conduct of physician services. See for example Wong (1996) and
Gunning and Sickles (2012).
12
See Sintonen and Linnosmaa (2000) for a review.
