Are Audiologists the Problem? As Usual, It Depends

Hearing Health & Technology Matters
August 28, 2012

“The secret of success is to get up early, work late and strike oil.” John D Rockefeller

Recent posts at Hearing Economics have put forth the position that independent hearing healthcare providers — Audiologists and dispensers — are like wheat farmers, in the sense that they are toiling away in fields, under the hot sun, hoping their harvest is not ruined by weather and that it brings a good Price when it finally gets to the market.  In that Economic view, we “hearing farmers” are Price Takers, at the mercy of the elements, government and… Price Makers.  

Just a wheat-pickin’ minute! None of the previous posts mentioned such a glorious thing as a Price Maker.  It’s been all about Suppliers and Demanders back-and-forthing in a free market.  Who are these Price Makers?  How do they do it?  How can we hearing farmers leave the dusty fields and go live in the big house with the Price Makers?  

Without going into Economic detail — which will show up eventually in an Econ 101 post — Price Makers are card-carrying Oligopolists — just a step down from Monopolists.  If you’ve ever played the game of Monopoly or discovered oil, you know the underlying economic principal:  the more money and assets you control, the more Market Power you have, meaning you get to set the Price.  If you don’t believe it, try landing on Boardwalk  when the owner has a hotel on it.  Odds are, the game’s over and you lose.  What if two players in the game have lots of properties and hotels?  Then both of them have Market Power — they both set Price even though they compete with each other.  That is an Oligopoly.  

Price-Maker Membership in an Oligopoly is exclusive and expensive, but highly desirable because Oligopolists are Price Makers.  Only a few firms compete in an Oligopoly market due to stringent membership criteria:

  1. Entry Barriers are Big: you need lots of capital to enter the industry
  2. Survival of the Financially Fittest:  you need lots of capital to compete in the market
  3. Firms compete by Product Differentiation NOT Price:  you want to keep Price up 

 Does that look like a Club for Hearing Farmers?  I don’t think so — what Audiologists do you know who have tons of capital, dominate their markets through product differentiation, and impose high Price on their markets and competitors?  OK, if you’re the only game in town you can do that for a little while until Beltone or the Internet shows up, but that model is rare and vanishing.  Economically, I conclude that we Hearing Farmers are NOT Oligopolists or Monopolists.  Meanwhile, others flaunt their Economics knowledge and cho0se to disagree –check it out:

“Audiologists and medical professionals have a legal monopoly on certain aspects of the distribution of hearing aids, and have strongly opposed attempts by others to sell hearing aids without add-on services because it threatens their ability to maintain their markups. “

That’s from a blog that nicely summarizes competitive and not-so-competitive markets, then applies the analysis to the US hearing healthcare market.  I don’t think the blogger likes Audiologists.  Upon further investigation, it turns out that the blog fronts a corporate competitor with a low-Price product.  Ah Ha!  Economic propaganda:{{1}}[[1]]See why you need to learn Economics to arm yourself against evil?[[1]] the blogger got all the Economics right except for that part where many small competitors cannot exercise market control.  In this case, it’s the Hearing Farmer Audiologists — poor helpless things that are being singled out as expensive middlemen who offer “add-on services” such as hearing aid fitting and follow-up. Middlemen, yes, but you can bet the Farm that the Hearing Farmers have not clandestinely banded together to keep Prices artificially high by bundling or any other means.  If anything, some independents engage in destructive, repetitive price wars guaranteed to clear the market of inefficient, cash-poor competitors.

A Commenter in Hearing Views, gave a different view of Audiologists, more in line with the Hearing Farmer view:

 Audiologists have sweat equity built up:  I must remind myself that success is “2% inspiration and 98% perspiration.” hi HealthInnovation will have a lot of sweating to do to undermine the strength of our profession!  

Sounds like a Hearing Farmer to me, but hi HealthInnovation sounds like something else, at least according to an emailmaking the rounds:  

Is Starkey the supplier [to hi HealthInnovations]? Interesting, if so, because it seems that Starkey’s aim is to have as many company-owned retail hearing aid  stores, under various brands, as there are  Starbucks coffee shops,  and it will be fun watching how it all can  co-exist in the same competitive environment.  

Sounds like a Monopolist or Oligopolists in the making, which should come as no surprise.  Consider the criteria for an Oligopoly above.  The only group in hearing healthcare that qualifies is the Big 5 or 6 manufacturers with sufficient infrastructure, money, and cojones to stay at the cutting technology edge.  Those are our Price Makers.  It should also come as no surprise that Hearing Farmers are flocking to the corporate Big Houses to get out of the sun — trading their sweat equity for safety in an increasingly competitive global market. The Farmers are never going to be Price Makers, but they can huddle outside the Big Houses under specially-designed umbrellas to ward off sun and rain.  Karl Strom had this to say in 2010 in the Hearing Review:  

 Forward Integration – purchase of dispensing offices and chains by manufacturers—continues to be one of the most significant market forces of the past 5 years. … virtually all major manufacturers have become, in part, practice owners.  … one beneficiary of this trend has been the dispensing network groups (like AHAA) … that advertise infrastructure benefits designed to support independent practices owners….  These networks have widened service offerings in recent years, providing everything from bookkeeping and business support to integrated database management and even buyout/transition options and retirement plans.  

Pogo put it best:  “We have met the enemy and he is us.”  


 photo courtesy of gadget

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