Second opinions in markets for expert services: Experimental evidence

Mimra, Wanda; Rasch, Alexander; Waibel, Christian

doi:10.1016/j.jebo.2016.03.004

Cited by 50 publications

(7 citation statements)

References 38 publications

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“…Although only ~20% of prices were equal markup, physicians still provided over 50% honest treatment in most sessions. This propensity for honesty was also documented in the literature ( 11 , 15 , 17 ). Overtreat (undertreat) pricing was closely related to the overtreatment (undertreatment) behavior of physicians.…”

Section: Resultssupporting

confidence: 67%

“… 7 In experimental studies of credence goods, subjects who played the role of monopolistic experts do not capture the full surplus of consumers as argued in theoretical predictions ( 11 , 15 , 17 ). It is possible that fair preferences of subjects yielded this result, and the right of consumer to reject in the credence good game was similar to that in the ultimatum game ( 18 ).…”

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confidence: 99%

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How does market competition affect supplier-induced demand? An experimental study

Chen¹,

Pan²,

Ding³

2023

Front. Public Health

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IntroductionThis study investigated the impact of competition on supplier-induced demand in medical markets theoretically and experimentally.MethodsWe employed the framework of credence goods to describe the information asymmetry between physicians and patients, and theoretically derives predictions of physicians' behaviors in monopolistic and competitive markets. Then we conducted behavioral experiments to empirically test the hypotheses.ResultsThe theoretical analysis revealed that an honest equilibrium would not exist in a monopolistic market, whereas price competition could induce physicians to reveal their types of treatment cost and provide honest treatments; thus, a competitive equilibrium is superior to that of a monopolistic market. The experimental results only partially supported the theoretical predictions, which showed that the cure rate of patients in a competitive environment was higher than that in a monopolistic market, although supplier-induced demand occurred more frequently. In the experiment, the main channel through which competition improved market efficiency was increased patient consultations through low pricing, as opposed to the theory, which stated that competition would lead to physicians' honest treatment of patients through fair prices.DiscussionWe discovered that the divergence between the theory and the experiment stemmed from the theory's reliance on the assumption that humans are rational and self-interested, which means that they are not as price-sensitive as predicted by theory.

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Section: Resultssupporting

confidence: 67%

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confidence: 99%

How does market competition affect supplier-induced demand? An experimental study

Chen¹,

Pan²,

Ding³

2023

Front. Public Health

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“…The impact of many other institutions-such as competition, reputation, second opinions, price regulation, reduction in insurance coverage, and media-have been investigated to improve market outcomes (see, e.g., Balafoutas, Beck, Kerschbamer, & Sutter, 2013;Balafoutas, Kerschbamer, & Sutter, 2017;Dulleck et al, 2011;Huck, Lünser, Spitzer, & Tyran, 2016;Kerschbamer, Neururer, & Sutter, 2016, 2019Liu, Brynjolfsson, & Dowlatabadi, 2019;Mimra, Rasch, & Waibel, 2016a, 2016bRajgopal & White, 2019;Rasch & Waibel, 2018). In sum, this literature suggests that, theoretically, several institutions should be able to mitigate market inefficiencies in the credence goods market.…”

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confidence: 99%

Monitoring institutions in healthcare markets: Experimental evidence

2021

Self Cite

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This paper investigates the impact of monitoring institutions on market outcomes in health care. Healthcare markets are characterized by asymmetric information. Physicians have an information advantage over patients with respect to appropriate treatments, which they may exploit through over-or under-provision or by overcharging. We introduce two types of costly monitoring: endogenous and exogenous monitoring. When monitoring detects misbehavior, physicians have to pay a fine. Endogenous monitoring can be requested by patients, while exogenous monitoring is performed randomly by a third party. We present a toy model that enables us to derive hypotheses and test them in a laboratory experiment. Our results show that introducing endogenous monitoring reduces the level of undertreatment and overcharging. Even under high monitoring costs, the threat of patient monitoring is sufficient to discipline physicians. Exogenous monitoring also reduces undertreatment and overcharging when performed sufficiently frequently. Market efficiency increases when endogenous monitoring is introduced and when exogenous monitoring is implemented with sufficient frequency. Our results suggest that monitoring may be a feasible instrument to improve outcomes in healthcare markets. K E Y W O R D Scredence goods, laboratory experiment, monitoring, overtreatment, overcharging, physician behavior, undertreatment | INTRODUCTIONA key characteristic of healthcare markets is information asymmetry between patients and physicians. Patients consult physicians for treatment without knowing what type of treatment is needed to cure their illness. When diagnosing patients, physicians learn the true nature of the presenting disease and may exploit their informational advantage over patients through three forms of misbehavior: providing more treatment than necessary (overtreatment), charging for more treatment than provided (overcharging), and providing less treatment than necessary (undertreatment). Patients must trust that their physician is providing them with appropriate treatment, and as such, health services are often referred to as credence goods (Darby & Karni, 1973;Dulleck & Kerschbamer, 2006). Empirical evidence has documented physicians' reactions to financial incentives, suggesting that over-and undertreatment as well as overcharging are prevalent phenomena (

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“…In our experimental design, we incorporate the 'credence goods' problematic by assuming that our patients are passive and accept each quantity of medical services provided by the physician. Typically applying neutral framings, experiments in the credence goods literature showed that overtreatment can be reduced by costly second opinions (Mimra et al, 2016), competition (Huck et al, 2016), and separating treatment from diagnosis and prescription decisions (Greiner et al, 2017). Recent experiments show that monitoring mechanisms with financial consequences reduce overtreatment and the overcharging of patients (Angerer et al, 2021;Hennig-Schmidt et al, 2019;and Groß et al, 2021).…”

Section: Introductionmentioning

confidence: 99%