Health Monopoly: A one-man show can start at any level

Dr Baljit Singh

The selector is watching a football match to select the player for the last match. He looks at every player, how they are going to contribute to win the last game.

A monopoly is a single seller of a product or service with no competitors. If you’re a single doctor in the suburbs, you can have all your patients come to you. 

Monopolies can occur in various ways, both natural and man-made. 

The natural way includes the possession of key resources, economies of scale and development strategies. A doctor who has inherited a great deal of wealth can easily use money to buy better resources than other colleagues.

Likewise, an individual or company with modern technology, innovation, and research can drive away competitors by offering goods and services at lower production costs. This is due to economies of scale. Individuals or companies can also initiate price wars—deliberately selling goods and services below the cost of production to drive out competitors. For example, a pharmacist or medical center in a small town can maintain its long-term monopoly by offering specials. It is a strategic move.

Artificial barriers that create a monopoly are the human-made barriers, framed in terms of rules, regulations, and conditions. Business activities require licenses that limit the degree of competition. The government grants patents to manufacturers (or companies) who invent products—original and necessary, for example, the invention of an essential medicine or machine. 

Monopoly enterprises increase their market share by controlling output/price. If a competitor appears, the monopolist can take over the entire market by lowering the price. Conversely, a monopolist can raise prices by limiting output.

Even though a monopoly is the sole producer of a product, that doesn’t mean they can charge whatever price they want. Fewer and fewer consumers want products to be more expensive. Monopolies can continue to make money in the long run as they adjust their capabilities to changes in demand by modernizing their plant size and earn positive profits by preventing other firms from entering the market.

A monopolist follows price discrimination. It helps low-income people and helps businesses increase profits by selling more products when they offer discounts. Price discrimination is a pricing strategy in which a monopolist charges different customers different prices for the same product—for example, paying different prices for medical services.

Monopolists can discriminate in two ways – discriminating between units of a good (first-degree and second-degree price discrimination) and discriminating between groups of buyers (market segmentation).

In the first level of price discrimination, the seller sets the product’s price by judging the customer’s willingness to pay – the maximum amount a buyer will pay for a good. Doctors may take advantage of the situation to charge you more if they find out you’re from abroad, but it’s hard to know if they’re willing to pay.

The doctor may not know that a person is a low-income earner. It may be illegal to solicit more from foreign or wealthy clients. The advantage of first-degree price discrimination is that customers who cannot pay a higher price can get it at a lower price.

In second-degree price discrimination, a good or service is differentiated according to the quantity demanded – discounts for bulk purchases. If you buy more, you get a deal. 

In the third level of price discrimination, prices vary according to the attributes of consumers such as age, gender, geographic location, and economic status, and the difference in elasticity promotes price discrimination.

For example, a doctor might charge someone in a low-income suburb (or village) a lower rate because of a lack of affordability. Because monopolies charge different prices for the same good in different markets, it helps low-income earners, and monopolies increase profits by charging different prices to sell more goods.

There are disadvantages of monopoly. A monopolist produces less output than a competitor and sets a higher price above the cost resulting in exploitation of consumers by paying higher prices for goods and services. Monopoly avoids competition through a system of patent rights or licensing.

Is monopoly good? Although a monopoly firm is likely to produce less and set a higher price than under perfect competition, it helps us in many ways. It avoids duplication: a large company can produce a product at a lower cost than many small producers.

Price discrimination helps low-income people and helps companies increase profits by selling more products at discounted prices. Monopolies have many resources available for research, which helps them bring new technologies and lower prices by reducing costs of production due to economies of scale.

Dr. Robert Pearl suggests in his research ‘U.S. Healthcare: A Conglomerate of Monopolies’ that de facto monopolies, whether we admit it or not, if not legal exist in forms of healthcare industry itself, hospitals, and health systems where health authorities have enormous power and concentration – merged hospitals leading to higher prices due to less competition; drug and device manufacturers, and private equity-backed doctors.

It exerts monopolistic control over the delivery and financing of the country’s medical care. According to Dr. Pearl, they remain opposed to any health care reform that would limit their influence or income resulting in higher priced hospitals and clinics, including health insurance premiums, quality of care, and reduced health care for those who cannot afford it. 

Rising health care prices mean people have less money available for other projects, and it forces the government to reallocate funds to hospitals rather than local police, schools, and infrastructure projects, Dr. Robert Pearl suggests.

No matter what market structure we follow or create, health equity (the absence of social or economic discrimination) and health equity (fairness) are the top priorities of any health system. We need to include another set of designs—systems that meet the immediate health needs of the people.

Views are personal