Monopolistic competition and the health care sector

The model of monopolistic competition is appropriate for describing the behavior of the health care sector in the United States. Uncertainty about quality of medical and related services promotes product differentiation especially when consumers do not bear the full costs of care. New technologies can be used to signal quality even when their clinical usefulness is unproven. Recent cost containment measures may reduce employment of ineffective technologies but may also inhibit the adaptation of genuinely useful developments.