We evaluate the relationship between insurers (payers) and providers of health care (hospitals) when they each have a nonnegligible share of the market. We focus in particular on their incentives to merge and the existence of equilibria where payers offer preferential treatment to a subset of hospitals. We demonstrate that hospitals are more likely to merge without consolidating their capacities the less competitive they are vis-à-vis the payer's market. Payers are more likely to merge without consolidating their capacities the less competitive either the hospitals' or the payers' market is. A given payer follows an exclusionary strategy when its starting bargaining position vis-à-vis hospitals is weak. At such exclusionary equilibria, payers tend to distinguish themselves from neighboring payers by contracting with a different subset of hospitals. Copyright (c) 1999 Massachusetts Institute of Technology.
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Suchan Chae & Paul Heidhues, 2003.
"Buyers’ Alliances for Bargaining Power,"
CIG Working Papers
SP II 2003-24, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
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