Based on evidence from variations in malpractice premiums, physicians have local market power, at least in some dimensions. It is observed that higher‐cost physicians pass on a significant portion of idiosyncratic costs to patients as higher prices. I test two hypothesized sources of this market power: barriers to entry from <?Pub Caret>specialization and relatively inelastic firm‐level demand for certain services. Examining the relationship of physician‐specific malpractice premiums to fees, I find no observable difference in the ability of surgeons and nonsurgeons to pass on these costs; however, both types of physicians pass them on more to surgical than to nonsurgical patients.
Copyright (C) 2001, Western Economic Association International
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