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Competition Among Health Plans: A Two-Sided Market Approach

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  • David Bardey
  • Jean-Charles Rochet

Abstract

"We set up a two-sided market framework to model competition between a Prefered Provider Organization (PPO) and a Health Maintenance Organization (HMO). Both health plans compete to attract policyholders on one side and providers on the other. The PPO, which is characterized by a higher diversity of providers, attracts riskier policyholders. Our two-sided framework allows us to examine the consequences of this risk segmentation on the providers' side, especially in terms of remuneration. The outcome of the competition depends mainly on two effects: a demand effect, influenced by the value put by policyholders on the providers access and an adverse selection effect, captured by the characteristics of the health risk distribution. If the adverse selection effect is too strong, the HMO receives a higher profit in equilibrium. On the contrary, if the demand effect dominates, the PPO profit is higher in spite of the unfavorable risk segmentation. We believe that by highlighting the two-sided market structure of the health plans' competition, our model provides a new insight to understand the increase in the PPOs' market share as observed in the USA during the last decade." Copyright (c) 2010, The Author(s) Journal Compilation (c) 2010 Wiley Periodicals, Inc..

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

Volume (Year): 19 (2010)
Issue (Month): 2 (06)
Pages: 435-451

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Handle: RePEc:bla:jemstr:v:19:y:2010:i:2:p:435-451

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Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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References

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Citations

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Cited by:
  1. Audrey Boilley, 2013. "Duopoly Competition and Regulation in a Two-Sided Health Care Insurance Market with Product Differentiation," Working Papers 2013-02, CRESE.
  2. Francisco Gomes & Laurence Kotlikoff & Luis Viceira, 2006. "The Excess Burden of Government Indecision," Working Papers wp123, University of Michigan, Michigan Retirement Research Center.
  3. David Bardey & Marcela Meléndez, 2012. "La economía de los mercados de dos lados: aplicación al análisis de las tarjetas de pago en Colombia," DOCUMENTOS CEDE 010021, UNIVERSIDAD DE LOS ANDES-CEDE.
  4. Helmuth Cremer & David Bardey & Jean-Marie Lozachmeur, 2009. "Competition in two-sided markets with common network externalities," DOCUMENTOS DE TRABAJO 005937, UNIVERSIDAD DEL ROSARIO.
  5. Jullien, Bruno, 2010. "Two-Sided B2B Platforms," IDEI Working Papers 652, Institut d'Économie Industrielle (IDEI), Toulouse, revised Mar 2011.
  6. Ching-to Albert MA & Philippe CHONÉ, 2010. "Optimal Health Care Contract under Physician Agency," Boston University - Department of Economics - Working Papers Series WP2010-022, Boston University - Department of Economics.
  7. Chang, Chih-Wei & Lin, Yan-Shu & Ohta, Hiroshi, 2013. "Optimal location in two-sided markets," Economic Modelling, Elsevier, vol. 35(C), pages 743-750.

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