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The Opportunities and Limitations of Monopsony Power in Healthcare: Evidence from the United States and Canada

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  • Jillian Chown
  • David Dranove
  • Craig Garthwaite
  • Jordan Keener
Abstract
Perhaps more than any other sector of the economy, healthcare depends on government resources. As a result, many healthcare systems rely on the use of government monopsony power to decrease spending. The United States is a notable exception, where prices in large portions of the healthcare sector are set without government involvement. In this paper we examine the economic implications of a greater use of monopsony power in the United States. We present a model of monopsony power and test its predictions using price differences between the United States and Canada – a country that represents an example of a “Medicare for All” style system. Overall, we find that wage differences for medical providers across the two countries are primarily driven by the broader labor market while price difference for prescription drugs are more directly the result of buyer power. We discuss theoretical reasons why a Canadian monopsonist may be more willing to exploit its buyer power over prescription drugs rather than provider wages and why a U.S. monopsonist might not be willing to do the same

Suggested Citation

  • Jillian Chown & David Dranove & Craig Garthwaite & Jordan Keener, 2019. "The Opportunities and Limitations of Monopsony Power in Healthcare: Evidence from the United States and Canada," NBER Working Papers 26122, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:26122
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    References listed on IDEAS

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    Cited by:

    1. Jeffrey Clemens & Joshua D. Gottlieb & Jeffrey Hicks, 2021. "How Would Medicare for All Affect Health System Capacity? Evidence from Medicare for Some," Tax Policy and the Economy, University of Chicago Press, vol. 35(1), pages 225-262.
    2. Davies, Charlotte & Davies, Stephen, 2021. "Assessing competition in the hip implant industry in the light of recent policy guidance," Social Science & Medicine, Elsevier, vol. 287(C).
    3. Joshua D. Gottlieb & Maria Polyakova & Kevin Rinz & Hugh Shiplett & Victoria Udalova, 2020. "Who Values Human Capitalists' Human Capital? Healthcare Spending and Physician Earnings," Working Papers 20-23, Center for Economic Studies, U.S. Census Bureau.

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    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • H4 - Public Economics - - Publicly Provided Goods
    • I0 - Health, Education, and Welfare - - General
    • I1 - Health, Education, and Welfare - - Health

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