Thursday, April 1, 2021

Very Brief Blog: Telemedicine and Perfect Competition, Podcast and A Few Links

 Everyone knows that there has been an explosion in telemedicine over the past year and there is much speculation on how it will continue and in what form.  (E.g. for one entry point see Paul Sonnier's essay in The Hill in early March.)

There's an interesting essay on economic and industry-structure repercussions which appeared last fall in Medical Economics under the title, "Will Telemedicine Create Perfect Competition?"  It's by economist Adam Block and health policy expert Michael Adelberg, who heads the health strategy practice at Faegre Drinker.  (Bios here and here).  

The article is newly complemented by a podcast at Health Assurance, a new podcast series.  See the 30-minute podcast here.   

(See index of interesting podcasts. The December 6 podcast authors have a 2020 book, Taneja, Klasko, Maney:  Unhealthcare.   Good podcasts also with Caroline Savello of COLOR, Toyin Ajayi of CityBlock, and Jenny Schneider of Livongo.)


Perfect Competition?

Perfect competition is an abstraction in economics where there is no friction between buyers and sellers and the exchange of goods, and profits rapid fall to minimal levels as prices approach marginal cost.  The absence of perfect competition gives profits, which formally are called economic rents or monopoly (oligopoly) power. 

Businesses tend to want to avoid perfect competition; creating barriers to entry of all types, whether brand loyalty, difficult credentialing rules, etc.  

There's a book that was influential on me a decade ago, In Defense of Monopoly (U Mich, McKenzie, Lee).  Without foreseeable profits, there won't be future cash flow to pay for today's risk and investments, and innovation is badly impaired.   It's hard to invest for innovation (and risk) if your product will also and quickly be sold at the marginal cost of production.   

But there are also a lot of natural ways for prices to exceed marginal cost.  Let's say a dry cleaned shirt costs $5, and in my city there's enough business for a dry cleaner every 2 miles.  Let's say it costs $1 for me to drive 2 miles.  My dry cleaner can charge $5.99 for a shirt (with 99 cents profit) before it makes sense for me to drive 2 miles to get a shirt cleaned for $5.00.   It's these inherent frictions that we may rarely think about, that give even a near-commodity business some return on investment.   Take them away, and the economics go into alternate paradigms we aren't used to.  This in turn affects industry structure and vertical integration (see. e.g. Coase's work on "the nature of the firm.")