Competition and market structure in the dental industry
Abstract
We
use Survey of Dental Practice data from 1983 to 2012 to examine market
power of dentists and hygienists in private practice. Our findings are
consistent with a dental market wherein practices use hygienist services
as a “loss leader” in order to steer patients into more lucrative
dental services, which exhibit the ability to markup price above
marginal cost. Both dental care exhibits an elasticity of demand of
roughly − 0.2, while hygienist care exhibits and elasticity of demand of
nearly − 0.6. Another theme that emerged from our findings is the
evidence for significant economies of scale in the dental market. The
overall returns to scale parameter of 2.1 suggests significant
increasing returns to scale are available to the typical dental
practice. Given that the typical practice has 1.5 dentists, the finding
is not surprising. While returns to scale diminishes with visit volume,
the largest quartile of practices still has meaningful increasing
returns to scale of roughly 1.75.
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