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Recent studies of physician pricing have pointed to the difficulty of developing a satisfactory theory of physician price determination. Wliile much thought has been given to the various special characteristics of the market for medical services (for example, see references 2, 5, 8, 9, 11, and 12), no single theory incorporates all the implications of such char acteristics. In addition, much of the limited empirical work on physician pricing fails to either support or reject proposed models having a priori appeal. For example, Newhouse constructed monopolistic and competitive models of physician pricing and attempted to demonstrate that his empirical results support the hypothesis that the market for physicians' services is monopolistic [13]. However, in a comment on the Newhouse study, Freeh and Ginsberg demonstrated that Newhouse's empirical findings could not distinguish between monopolistic and competitive pricing under standard profit maximization assumptions [6].

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This paper was published in Journal of Behavioral Economics, Vol. 8, No. 2, 1979, pp. 115-135