12 - Countervailing Power

Summary

In some situations, it may be advantageous for a government to allow buyers or sellers to cooperate on prices and output to keep a lawful monopolist or a lawful monopsonist, respectively, in check. Although it may seem anticompetitive at first, allowing this behavior is a way to even the playing field and can lead to a socially optimal solution. The parties will find it in their mutual self-interest to select the quantity that maximizes the surplus, which is the competitive quantity. This market structure with actors on both sides acting as a single monopolist is known as bilateral monopoly. In many local markets for physician services, reimbursement rates (payment for services) are dictated by large health insurers who wield monopsony power. In an effort to blunt the buying power enjoyed by the health insurer, physicians have attempted to collectively bargain for the sole purpose of negotiating reimbursement rates. In this chapter, we examine the case for collective bargaining by physicians.