Does the Model of Perfect Market Competition Fit the Health Care Sector – Health System Example

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"Does the Model of Perfect Market Competition Fit the Health Care Sector" is a perfect example of a paper on the health system. The perfectly competitive market model may not be as easily applicable to the health care sector due to the different services under it. The model may be fitted mostly by companies that produce consumable items, like pharmaceutical industries, as these are practically indispensable and any consumer would be liable to buy from any company due to drugs having relatively similar prices. However, the human health care resources (e. g.

doctors and nurses) may not fit the model because of inherent differences in skills. To fit the personnel sector better to the market model, only average to high-performing personnel must be allowed to operate and modifications in governance are done to improve measurability and contestability of health care human resources. Does the Model of Perfect Market Competition Fit the Health Care Sector?                       The definition of perfect market competition in the economic settings is that under the assumptions that, under certain conditions, the competitive forces produce an equilibrium that does not give favors to either the market or the consumers, and that there is no excludability, rivalry, and reject ability within the system (Preker, Harding, & Travis, 2000).

Also, goods are categorized based on being private goods (has excludability, rivalry, and reject ability), public goods (has none of the three), and mixed (has unequal proportions of any one or two of the three). While the following assumptions are easy to apply to ordinary market settings, it may be a bit difficult to fit this competitive market model to the health care sector.

For one, different sectors have different measurable characteristics, supply and demand, risk-sharing, and while the quantity of output would be easier to project and represent due to the number of sales, the quality of output in managed care would be a lot harder to measure since it relies on the efficiency of the personnel and the consumer or patient satisfaction level (Preker, et al. , 2000). Changes must therefore be made in some parts of the health sector that is difficult to measure quantitatively in order to provide much more homogeneity within its market niche.                       The pharmaceutical industry is a part of the health care sector that is measurable (Preker, et al. , 2000).

The marginal cost, opportunity cost, and marginal benefits can easily be examined through marginal analysis. The contestability is relatively low since companies normally keep financial records. Not only that but their retailers or bulk-sellers also keep their own records, which can be accessed as needed. Another thing is that compared to other sections of the health care industry, there is a low level of excludability and rivalry, as well as reject ability since most pharmaceutical companies sell the same drugs and other products, which are all fairly equal in their functions due to similar chemical properties of the drugs (Preker, et al. , 2000).

It can be compared to other consumables that have low scarcity, for example, a face mask from any company has the generic properties of one, and thus any mask bought from any company is expected to be as functional as the other brands.                       On the other hand, the service rendered by the human resources of the health care sector is of a different matter.

Aside from the fact that there are many members of this group, their skills as well as self-interests are different from each other and may range from below average to highly skilled. Such differences result in market failures for some institutions. Also, the number of patients each day or year would not be able to truly define whether the skills of these professionals are high or low since it is possible that highly-skilled personnel (e. g. with specializations) have a small number of clients, or average-skilled personnel (e. g.

more generalized skills) can have numerous patients at any one time, and both situations can be attributed to manpower costs.   Thus it is rather hard to measure the skills of health care personnel because they can only be judged by the degree of satisfaction of their patients or clients, which also makes the qualitative attributes highly contestable (Preker, et al. , 2000).                       While the pharmaceutical industry is relatively easy to fit in the perfect market competition model due to its highly measurable output, the human resources in health care are much harder to fit.

A possible solution for this is to enhance its measurability, for example setting quantifiable targets for accountability and performance, such as increasing the number of satisfied customers (Preker, et al. , 2000). This can be exemplified by only allowing above-average to highly-skilled personnel to operate, both in private and public settings. In relation to this, the contestability must also be improved, such modification of governance that would expose both public and private sectors to similar potential benefits and losses (Preker, et al. , 2000).

If there would be much more homogeneity across all health care personnel, excludability, rivalry, and reject ability in the system can be minimized, making health care fit better in the perfect market competition model.    


Preker, A., Harding, A., & Travis, P. (2000). "Make or buy" decisions in the production of health care goods and services: new insights from institutional economic and organizational theory. Bulletin of the World Health Organization, 78(6): 779-791.
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