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Quality and Welfare in a Mixed Duopoly with Regulated Prices: The Case of a Public and a Private Hospital

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  • Annika Herr

Abstract

Hospital markets are often characterised by price regulation and the existence of different ownership types. Using a Hotelling framework, this paper analyses the effect of heterogeneous objectives of the hospitals on quality differentiation, profits, and overall welfare in a price regulated duopoly with exogenous symmetric locations. In contrast to other studies on mixed duopolies, this paper shows that in this framework privatisation of the public hospital may increase overall welfare. This holds if the public hospital is similar to the private hospital or less efficient and competition is low. The main driving force is the single regulated price which induces under-(over-)provision of quality of the more (less) efficient hospital compared to the first-best. However, if the public hospital is sufficiently more efficient and competition is fierce, a mixed duopoly outperforms both a private and a public duopoly due to an equilibrium price below (above) the price of the private (public) duopoly. This medium price discourages overprovision of quality of the less efficient hospital and - together with the non-profit objective - encourages an increase in quality of the more efficient public hospital. --

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Bibliographic Info

Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 12 (2011)
Issue (Month): 4 (November)
Pages: 422-437

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Handle: RePEc:bla:germec:v:12:y:2011:i:4:p:422-437

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Cited by:
  1. Gu, Yiquan & Wenzel, Tobias, 2011. "Transparency, entry, and productivity," DICE Discussion Papers 39, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Christin, Clémence, 2011. "Entry deterrence through cooperative R&D over-investment," DICE Discussion Papers 38, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Stühmeier Torben & Wenzel Tobias, 2012. "Regulating Advertising in the Presence of Public Service Broadcasting," Review of Network Economics, De Gruyter, vol. 11(2), pages 1-23, June.
  4. Seungchul Lee & Robert Rosenman, 2013. "Reimbursement and Investment: Prospective Payment and For-Profit Hospitals’ Market Share," Journal of Industry, Competition and Trade, Springer, vol. 13(4), pages 503-518, December.
  5. Ellert, Alexander & Urmann, Oliver, 2012. "Competition in the market for supplementary health insurance: The case of competing nonprofit sickness funds," Working Papers on Risk and Insurance 25 [rev.], University of Hamburg, Institute for Risk and Insurance.
  6. Haucap, Justus & Herr, Annika & Frank, Björn, 2011. "In vino veritas: Theory and evidence on social drinking," DICE Discussion Papers 37, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  7. Katz, Michael L., 2013. "Provider competition and healthcare quality: More bang for the buck?," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 612-625.
  8. Rosella Levaggi & Marcello Montefiori, 2013. "Patient selection in a mixed oligopoly market for health care: the role of the soft budget constraint," International Review of Economics, Springer, vol. 60(1), pages 49-70, March.

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