Quasi-Market

Quasi-markets, also sometimes described as planned markets or internal markets, are organizationally designed and supervised markets intended to bring us more efficiency and choice than bureaucratic delivery systems while maintaining more equity, accessibility, and stability than conventional markets.

From the viewpoint of economics, a market is an exchange mechanism of commodities that is able to match supply and demand, mostly through price adjustments. In this way, a market can also be conceptualized as a self-adjusting monetary incentive system that influences the behavior of consumers and providers so they agree on terms of exchange. Quasimarkets are also an exchange system that aims to emulate competitive markets' characteristics of being self-adjusting incentive systems that influence consumers' and providers' behaviors. However, those systems are “quasi” markets because they have characteristics both at supply and demand levels that differentiate them from conventional markets.

On the supply side, quasi-markets are a form of market system because there is competition between many providers to attract consumers. However, most of the time, these providers do not merely seek a maximization of their profits. In the public sector, these providers are often quangos or other forms of more-or-less nonowned organizations or NGOs (nongovernmental organizations). Providers can also be components or sectors of a single organization that internally trade their services inside a specific form of quasi-market called an internal market. Moreover, internal markets are not open markets because providers and their products or services often need a third party or purchaser approbation to enter the market.

On the demand side, quasi-markets are designed to create or enhance consumer choice, obliging providers to be responsive to those choices. However, welfarestate quasi-markets differ from conventional ones because generally, consumers are not directly paying for the service they choose and because price plays only a marginal role, if any, in the consumers' choice. In private sector internal markets, pricing does have a direct influence on internal resource allocation, though it does not directly influence a company's bottom line.

The implementation of any form of quasi-market implies that purchaser and provider are distinct entities and that there is more than one provider. The process by which some entities are granted a purchaser status and the allocative prerogatives that come with it, while other entities are given a provider status and broader latitude in their own governance and strategic planning, is called a purchaser-provider split.

In most welfare-state quasi-markets, while consumers have a level of choice in the services they consume, it is a third party, often a state-based purchaser, who will pay or reimburse the provider for those services. Quasi-market purchasing can be implemented through fee-for-service reimbursements, vouchers, retrospective budgeting, and the like. Hence, while consumers' choices will be made according to such factors as perceived quality of service, waiting time, or availability, price will generally play no role in their choice. However, price will matter for the third-party payer, who is expected to limit consumers' choices to services that have a comparable high value for money. Successful providers are expected to simultaneously respond to purchasers' demands for low price or good value as well as to consumers' demands for quality, availability, waiting time, and the like. However, this implies that the necessary information to make a rational choice of providers and services will be accessible in a timely and usable form to both consumers and [Page 784]purchasers. This involves important transaction costs that are supposed to be compensated for by added efficiency.

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