Competition and Market Structure in the Dental Industry

We use Survey of Dental Practice data from 1982-2012 to examine market power of dentists and hygienists in private practice. We find that the hygienist market exhibits pricing close to perfect competition yet the dentist market has monopolistically competitive structure where practices have the ability to markup price above marginal cost. Both dental and hygienist services have similar elasticities of demand, at roughly -0.5. Another theme that emerged from our findings is the evidence for significant economies of scale in the dental market. The overall returns to scale parameter of 4 suggests significant increasing returns to scale are available to the typical dental practice. Given that the typical practice has 1 dentist, the find is not surprising. While returns to scale diminishes with practice size, the highest quartile of practices still has meaningful increasing returns to scale of roughly 2.3.