Competition and market structure in the dental industry

We use Survey of Dental Practice data from 1983 to 2012 to examine market power of dentists and hygienists in private practice. Our findings are consistent with a dental market wherein practices use hygienist services as a "loss leader" in order to steer patients into more lucrative dental services, which exhibit the ability to markup price above marginal cost. Both dental care exhibits an elasticity of demand of roughly - 0.2, while hygienist care exhibits and elasticity of demand of nearly - 0.6. Another theme that emerged from our findings is the evidence for significant economies of scale in the dental market. The overall returns to scale parameter of 2.1 suggests significant increasing returns to scale are available to the typical dental practice. Given that the typical practice has 1.5 dentists, the finding is not surprising. While returns to scale diminishes with visit volume, the largest quartile of practices still has meaningful increasing returns to scale of roughly 1.75.