Market power, monopsony, and health insurance markets.

ABSTRACT

This paper details the potential adverse welfare consequences of monopsony power in health insurance markets. It is shown that the exercise of monopsony power in the medical services market can augment the monopoly rents of an insurer with market power in the insurance market, while at the same time inefficiently reducing supplier welfare. Cost-sharing by not-for-profit firms and its welfare consequences are also analyzed.