A Structural Approach to Market Definition With an Application to the Hospital Industry
AbstractMarket definition is essential to merger analysis. Because no standard approach to market definition exists, opposing parties in antitrust cases often disagree about the extent of the market. These differences have been particularly relevant in the hospital industry, where the courts have denied seven of eight merger challenges since 1994, due largely to disagreements over geographic market definition. We compare geographic markets produced using common ad hoc methodologies to a method that directly applies the âSSNIP testâ to hospitals in California using a structural model. Our results suggest that previously employed methods overstate hospital demand elasticities by a factor of 2.4 to 3.4 and define larger markets than would be implied by the merger guidelinesâs hypothetical monopolist test. The use of these methods in differentiated product industries may lead to mistaken geographic market delineation, and was likely a contributing factor to the permissive legal environment for hospital mergers.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal The Journal of Industrial Economics.
Volume (Year): 61 (2013)
Issue (Month): 2 (06)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-1821
Other versions of this item:
- Martin Gaynor & Samuel A. Kleiner & William B. Vogt, 2011. "A Structural Approach to Market Definition With an Application to the Hospital Industry," NBER Working Papers 16656, National Bureau of Economic Research, Inc.
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L4 - Industrial Organization - - Antitrust Issues and Policies
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- John Van Reenen, 2004.
"Is there a market for work group servers? Evaluating market level demand elasticities using micro and macro models,"
LSE Research Online Documents on Economics
773, London School of Economics and Political Science, LSE Library.
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- Polk, Andreas & Bilotkach, Volodymyr, 2013. "The assessment of market power of hub airports," Transport Policy, Elsevier, vol. 29(C), pages 29-37.
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