The competitive nature of the primary-care physician services market

This paper assesses the strength of the demand constraint faced by the average primary-care physician firm. Specifically, the direct and constraining effects of new physician entry and consumer sensitivity to the physician's choice of fees and patient waiting time are measured. A five equation structural model is derived based on a comprehensive theoretical model of the individual physician practice. This structural model is then estimated using a 2SLS procedure as applied to individual physician firm data. The results of the empirical analysis suggest that the market for primary-care physician services in large SMSAs (where physician densities are greatest) is reasonably characterized by market competition. Consumer choice and new physician entry effectively constrain the economic behavior of the physician firm.