Two-part pricing and the mark-ups charged by primary care physicians for new and established patient visits

Abstract

Patients learn something when they visit a physician for the first time. Primary care physicians may exploit this information by using a two-part pricing strategy to price discriminate between new and established patients. The price of established patient visits will exceed marginal cost; because physicians maximize their profits from the entire relationship with a patient, competition drives new patient prices below marginal cost. Empirical tests indicate that general and family practitioners and obstetricians and gynecologists charge higher mark-ups on established patient visits than on new patient visits. Internists charge similar mark-ups on both types of visit.