Relative Price Differentials in Various Market Structures for Healthcare

Abstract

Recent proposed changes in federal healthcare laws by leading U.S. political parties will lead to higher prices for consumers and heftier profits for retailers especially in monopolistic markets. This is due to the way that the surcharges are proposed to be levied which is as a percentage of the base price of the healthcare service. This paper explains how prices are formed by a profit maximizing firm under the assumption of a production function that is homogeneous of degree one. This paper also demonstrates the relationship between markups and the price elasticity of demand. An analysis of how the newly proposed healthcare rules would impact relative prices in markets of varying levels of competition is then performed.