Industrial Organization Studies on Mixed Health Care Markets and Waiting Times

This dissertation consists of three unpublished essays on different aspects of the Finnish dental care industry. All essays are representative of the modern industrial organization as they employ structural models adjusted to fit the characteristics of the dental care industry as their methodological approach. Moreover, all essays use individual-level data on visits to dental care providers. The first essay uses visits to Finnish private dental care providers, while the second and the third essays use visits to both public and private dental care providers. These data allow me to observe visit level prices, waiting times and what dental care procedures are performed on the consumers.

The first essay estimates the magnitude of choice frictions in the Finnish private dental care industry. Choice frictions make switching a dental care practice costly and I find that in this setting consumers only rarely switch their dental care provider. However, two competing hypotheses can explain the lack of switching. First, consumers might be facing choice frictions. Second, consumers might have heterogenous preferences for dental care providers, and thus, the lack of switching might simply result from consumers repeatedly visiting their most preferred dental care practice over years as their preferences remain unchanged. I disentangle the choice frictions from the unobserved preference heterogeneity by controlling for consumers’ time invariant practice specific preferences. I find that choice frictions are important in the Finnish dental care industry and their magnitude is similar as moving the average consumer’s dental practice of choice 21% closer to the consumer.

The second essay studies how reducing waiting times at public dental care providers by increasing their production capacity affects market outcomes, when consumers can bypass the queue by paying more at a private alternative. I construct and estimate a model of the industry with consumer demand, public practice waiting times and private practice prices as equilibrium objects. In my counterfactual simulations I increase the number of full-time equivalent dentists at the public dental care providers by 20%. I find that waiting times decrease by only 1.5 days or 5%, because the initial decrease in waiting times after the capacity increase is offset by a large demand increase. Private practices do not decrease their prices, even though they lose on average 0.5 percentage points of market share, as the consumers most sensitive to prices switch away from private practices. Finally, consumer welfare and the use of dental care increases for all consumers, but less for the consumers with the lowest income. The lowest income consumers are not very likely to visit a public dental care provider, and they dislike waiting the least among all consumers, and thus they benefit the least.

The third essay studies how public dental care providers prioritize consumers with more severe oral health conditions and how the prioritization affects consumers’ welfare and their choices of dental care providers across public and private providers. We first obtain a measure of consumers’ oral health using machine learning and then estimate demand models separately for consumers with better and worse oral health. Healthier consumers wait on average 30 days, while sicker consumers are prioritized and wait seven days less. We find that consumers with worse oral health are willing to pay twice as much to wait a day less compared to consumers with better oral health. In our counterfactual simulation, where the consumers with worse oral health wait as long as the healthier consumers, consumer welfare per capita decreases by 5.9 euros for the consumers with worse oral health. Equalizing waiting times prompts these consumers to switch from public to private providers, and some ultimately go without care.

Contact Tuomas Markkula

Email: tuomas.markkula@aalto.fi
Home page: https://tuomasmarkkula.github.io/