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The Effect of the Nonprofit Motive on Hospital Competitive Behavior

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Author Info
Teresa Harrison (Drexel University)
Kristina Lybecker (Drexel University)
Abstract

In this paper, we employ three simple theoretical models of nonprofit hospitals to investigate equilibrium behavior when hospitals compete. Utilizing a differentiated Bertrand model, we examine how prices, quantity of patients served, service to the uninsured, and quality of care are affected as nonprofits place more weight on profit maximization. We find that the specification of the nonprofit motive greatly impacts the results. When the nonprofit motive is maximizing output, prices rise for both hospitals as the nonprofit moves away from its nonprofit motive. However, if the nonprofit cares about serving the uninsured, prices in the market fall. Finally, when hospitals compete on price and quality, more emphasis on profits results in an increase in price at the for-profit hospital and a decrease in price at the nonprofit hospital. These results suggest that the importance of the nonprofit motive has been underestimated and should be further investigated.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Contributions to Economic Analysis & Policy.

Volume (Year): 4 (2005)
Issue (Month): 1 ()
Pages: 1368-1368
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Handle: RePEc:bep:eapcon:v:4:y:2005:i:1:p:1368-1368

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Find related papers by JEL classification:
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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  1. Richard Steinberg, 1986. "The Revealed Objective Functions of Nonprofit Firms," RAND Journal of Economics, The RAND Corporation, vol. 17(4), pages 508-526, Winter. [Downloadable!] (restricted)
  2. Capps, Cory & Dranove, David & Satterthwaite, Mark, 2003. " Competition and Market Power in Option Demand Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 737-63, Winter.
  3. Tomas J. Philipson & Richard A. Posner, 2001. "Antitrust and the Not-For-Profit Sector," NBER Working Papers 8126, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Lynk, William J, 1995. "Nonprofit Hospital Mergers and the Exercise of Market Power," Journal of Law & Economics, University of Chicago Press, vol. 38(2), pages 437-61, October.
  5. Martin Gaynor & William B. Vogt, 1999. "Antitrust and Competition in Health Care Markets," NBER Working Papers 7112, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Ching-to Albert Ma & James F. Burgess Jr., 1992. "Quality Competition, Welfare, and Regulation," Papers 0024, Boston University - Industry Studies Programme.
  7. David Sappington & J. Sidak, 2003. "Incentives for Anticompetitive Behavior by Public Enterprises," Review of Industrial Organization, Springer, vol. 22(3), pages 183-206, May. [Downloadable!] (restricted)
  8. Martin Gaynor & William B Vogt, 2003. "Competition among Hospitals," The Centre for Market and Public Organisation 03/087, Department of Economics, University of Bristol, UK. [Downloadable!]
    Other versions:
  9. Darius Lakdawalla & Tomas Philipson, 1998. "Nonprofit Production and Competition," NBER Working Papers 6377, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Richard G. Frank & David S. Salkever, 1991. "The Supply of Charity Services by Nonprofit Hospitals: Motives and Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 430-445, Autumn. [Downloadable!] (restricted)
  11. Lynk, William J. & Neumann, Lynette R., 1999. "Price and profit," Journal of Health Economics, Elsevier, vol. 18(1), pages 99-116, January. [Downloadable!] (restricted)
  12. Dusansky, R. & Kalman, P. J., 1974. "Toward an economic model of the teaching hospital," Journal of Economic Theory, Elsevier, vol. 7(2), pages 210-223, February. [Downloadable!] (restricted)
  13. Calem, Paul S. & Dor, Avi & Rizzo, John A., 1999. "The welfare effects of mergers in the hospital industry," Journal of Economics and Business, Elsevier, vol. 51(3), pages 197-213, May. [Downloadable!] (restricted)
  14. Dranove, David & Ludwick, Richard, 1999. "Competition and pricing by nonprofit hospitals: a reassessment of Lynk's analysis," Journal of Health Economics, Elsevier, vol. 18(1), pages 87-98, January. [Downloadable!] (restricted)
  15. Keeler, Emmett B. & Melnick, Glenn & Zwanziger, Jack, 1999. "The changing effects of competition on non-profit and for-profit hospital pricing behavior," Journal of Health Economics, Elsevier, vol. 18(1), pages 69-86, January. [Downloadable!] (restricted)
  16. Deneffe, Daniel & Masson, Robert T., 2002. "What do not-for-profit hospitals maximize?," International Journal of Industrial Organization, Elsevier, vol. 20(4), pages 461-492, April. [Downloadable!] (restricted)
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