Price Discrimination in Medicine

M ANY disinguished economists have argued that the medical profession constitutes a monopoly, and some have produced evidence of the size of the monopoly gains that accrue to the members of this profession.' Price discrimination by doctors, i.e., scaling fees to the income of patients, has been explained as the behavior of a discriminating monopolist.2 Indeed this has become the standard textbook example of discriminating monopoly.3 However this explanation of price discrimination has been incomplete. Economists who have subscribed to this hypothesis have never indicated why competition among doctors failed to establish uniform prices for identical services. For any individual doctor, given the existing pattern of price discrimination, income from professional services would be maximized if rates were lowered for affluent patients and increased for poor patients. However, if many doctors engaged in such price policies, a pattern of prices for medical services would be established that would be independent of the incomes of patients. Yet despite this inconsistency between private interests and the existing pattern or structure of prices based on income differences, this price structure has survived. Is this a contradiction of the law of markets? Why is it possible to observe in a single market the same service sold at different prices? The primary objective of this paper, which is an essay in positive econom-