Strategic Dynamics of Antibiotic Use and the Evolution of Antibiotic-Resistant Infections

This paper studies a dynamic model of a fee-for-service healthcare system in which healthcare providers compete for patients by prescribing antibiotics. Using antibiotics limits antibiotic-treatable infections, but fosters the growth of antibiotic-resistant infections. The paper demonstrates a 'Goldilocks' effect from provider competition. A perfectly competitive market for providers over-prescribes antibiotics because providers do not bear the cost of antibiotic-resistant infections. A patient monopolist under-prescribes antibiotics in order to increase the level of treatable infection. This is because while infection is a 'bad' for society, infection is a 'good' for a provider of antibiotics under a fee-for-service regime. Due to more moderate antibiotic use, oligopolistic competition can be the optimal decentralized market structure. The paper then demonstrates how the model can be used for policy analysis by computing the optimal licensing regime, prescription quota, and tax on antibiotics