ABSTRACT
In previous chapters it has been noted that supply is the dominant side, if sides can be distinguished, of the health care sector. To bring this process of clarification one stage further this chapter now turns to reflect upon the market process and its failure to provide health care efficiently. This draws upon earlier discussion of the nature of the commodity health care. The chapter thus includes some topics which we have considered earlier. It is largely contextual in that it emphasises, for example, the important role that the characteristics of the commodity play in determining supply conditions. With this intent, the chapter begins with section 10.2 discussing the difficulties imposed by the characteristics of health care upon efficient market provision. The non-market responses to this failure and the structural consequences are then discussed in section 10.3. Finally the modification placed upon conduct which arises from these responses is considered in section 10.4
10.2 Markets and failures
In the traditional market allocation process the activities of producers are coordinated with each other and with the demands (as distinct from the needs) of consumers by means of information conveyed by market signals. Producers, in competitive market conditions, will expand production of every good and service up to the point where the costs of producing any extra good become equal to the market price for that good. Given an assumption that producers wish to maximise profits, there will be an incentive to keep production costs at a minimum; production will be most cost-effective. As price is a reflection at the margin of consumer valuations of the good or service demanded, ceteris paribus, the higher are consumer valuations of a good the higher its price will be. Allowing producers to be guided by means of price signals will also ensure therefore that the pattern of production matches consumer wants. In this way a mix
of goods and services will be provided, at lowest possible resource costs, which is compatible with consumer demands.
