Volume 8, Number 2 (Spring) 1973
Ruffin, Roy J., and Duane E. Leigh. 1973. "Charity, Competition, and the Pricing of Doctors' Services." Journal of Human Resources 8(2):212-222.
There are two basic explanations of price discrimination in medicine. The traditional explanation is that the American Medical Association enforces sufficient price discipline to apply the theory of a price-discriminating monopolist. Members of the AMA explain price discrimination by the operation of a charity. This paper develops a charity-competition model in which price discrimination emerges as a consequence of utility maximization by the individual doctor and the necessity of market equilibrium. It is shown that the charity model is more consistent with available empirical evidence than is the monopoly model.
Professor Ruffin is a member of the faculty at the University of Iowa. Professor Leigh is a member of the faculty at Washington State University. The authors are indebted to Armen Alchian, Harry Johnson, and Cliff Lloyd for their comments and encouragement. Thanks are also extended to James Jeffers, Hyman Joseph, Reuben Kessel, and Sam Wu for discussions of particular points.
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US ISSN 0022-166X