Price Discrimination for Physicians' Services

This paper develops an alternative model for the discriminatory pricing behavior of physicians. By introducing search cost explicitly, it generates a result that price discrimination will be practiced by all physicians even if the elasticity of market demand is less than one and all or most of the physicians are profit-maximizers. The proposed model also explains the history and the recent trend of pricing behavior in medicine and may further explain some of the political actions of the American Medical Association.