The asymmetric information characterizing markets for professional services has been used to justify tying requirements and other restrictions on the business practices of professionals. In this paper the prices and quality effects of state restrictions that prohibit the fitting of contact lenses by independent opticians and thereby tie the sale of contact lenses to the services of ophthalmologists and optometrists are estimated. The results suggest that prices are significantly higher in markets with tying requirements, controlling for differences in quality and variations in other state commercial practice restrictions. The tying requirements and the commercial practice restrictions, however, appear to have statistically insignificant effects on quality.

The nature and normative properties of competition in health care markets have long been the subject of much debate. In this paper we consider what the optimal benchmark is in the presence of moral hazard effects on consumption due to health insurance. Intuitively, it seems that imperfect competition in the health care market may constrain this moral hazard by increasing prices. We show that this intuition cannot be correct if insurance markets are competitive. A competitive insurance market will always produce a contract that leaves consumers at least as well off under lower prices as under higher prices.