Price and capacity decisions in a telemedicine service system under government subsidy policy

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Abstract
With the development of information and communication technologies, telemedicine has been widely used in different healthcare sectors. In this paper, we study a telemedicine service system consisting of a non-profit general hospital (GH) and a for-profit telemedicine firm (TF). The GH is subsidised by the government, which aims at maximising social welfare. We adopt a mixed duopoly game to obtain the optimal price and capacity decisions of the GH and the TF. The interaction between the GH and the TF is specifically examined. Nash equilibrium strategies of the telemedicine service system are discussed under the government subsidy policy. Results show that the influence between the GH and the TF is unilateral. The service price and capacity decisions of the TF will not affect the capacity decision of the GH. Besides, the government subsidy policy on the GH can improve the total patients' utility in the GH and the profit of the TF, but the impacts become insignificant as the subsidy budget increasing. Numerical experiments further demonstrate that the introduction of telemedicine is effective in reducing patients' waiting times and improving social welfare, especially in rural areas that lack medical resources.

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