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Mergers and Exclusionary Practices in Health Care Markets

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  • Esther Gal-Or

Abstract

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

Volume (Year): 8 (1999)
Issue (Month): 3 (09)
Pages: 315-350

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Handle: RePEc:bla:jemstr:v:8:y:1999:i:3:p:315-350

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

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