Price Transparency Could Backfire

Danish example shows that prices in health care might go up

Price transparency as a way to spur competition among health care providers on price could increase prices. Researchers are citing a 1997 study about the Danish ready-made concrete to explain why.

The New York Times reported on the new, unexpected celebrity of "Government-Assisted Oligopoly Coodination? A Concrete Case" in the Journal of Industrial Economics on Monday, the same day that the President Trump issued his price transparency executive order.

The takeaway point of the Danish study is that prices went up (by 15%–20%), not down, after Danish antitrust authorities had ready-mixed concrete companies disclose their prices. The authors rule out a business upturn or capacity constraints as an explanation. "Instead," wrote Svend Albak, Peter Mollgaard, and Per B. Overgaard,"we argue that change in information structure resulting from publication of firm-specific prices allowed firms to reduce oligopoly competition and, hence, led to increased prices." 

Some experts see similarities between the American health care market and an oligopolies elsewhere, including the Danish ready-mixed concrete industry.  Essentially, publication of prices encouraged companies to bid up their prices to the competitors' levels rather than vie for business by lowering them. "Once the companies knew what their competitors were charging, it was easy for them to all raise their prices in concert," the Times reported. 

Others see the Danish comparison as far fetched: a long time ago, a different country, a very different industry. Americans shop like mad for other goods and services on price, they argue. If reliable and intelligible pricing information on health care services were available, Americans would use it and unleash competition among providers in the process, they believe.