South-Western College Publishing - Economics  
Would You Like Fries With Your Antibiotics?
Topic Monopolistic Competition ; Product Markets
Key Words health care, medical clinics, competition, pharmacy
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Reference ID: A161924356

News Story Health care has a new player in the market: quick clinics designed to serve people who want common ailments diagnosed at a lower cost than a visit to the doctor. RediClinic and MinuteClinic, two of the most prominent chains in the US, expect to rapidly increase the number of clinics over the next few years. Why are they so popular?

A primary reason is cost. A visit to one of these clinics can cost half that of a doctor's office visit, and less than a quarter of the cost of an ER visit. Convenience is another factor. MinuteClinic's motto is, "You're Sick, We're Quick." Problems can be quickly diagnosed. Further, many of these clinics are being located in Wal-Mart stores or other drug store chains, such as CVS (who bought the MinuteClinic chain). Instead of waiting in a drab waiting room for your visit, you are given a pager and can shop while waiting to see the doctor. Some clinics are staffed by doctors, but most are staffed by nurse practitioners. While serious cases will be referred to a doctor, nurse practitioners have the ability to diagnose common illnesses, and perhaps more importantly, prescribe medication.

Industry executives stress that their goal is not to become the McDonald's of the health care industry. They indicate that quality control is important, and want consistency of care that consumers have come to expect from their doctors. Of course, McDonald's has done a good job of both, so perhaps they can take a lesson from them, anyway.

Discussion Questions:
1. Why would CVS want to purchase such a retail clinic as MinuteClinic?
2. What would you expect to see happening to the fees charged by doctors as a result of this new market niche?
3. What external economic benefits may arise as a result of this new innovation in health care?
Multiple Choice/True False Questions:
1. The introduction of these retail clinics should -------- the elasticity of demand for health care.

  1. Increase
  2. Decrease
  3. Not change
  4. Reduce to zero
2. Assuming this is a monopolistically competitive industry, we would expect:

  1. Profits of all firms to eventually fall to zero.
  2. The good firms remaining profitable.
  3. The inefficient firms to lose money.
  4. The demand for hospitals to fall.
3. This new niche of retail medical clinics will have the greatest appeal for

  1. Those with health insurance
  2. Those without health insurance
  3. Those with insufficient health insurance
  4. Both B and C
Source "McClinics," The Economist. April 12, 2007.
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