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Competition and quality in health care markets: A differential-game approach

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  • Brekke, Kurt R.
  • Cellini, Roberto
  • Siciliani, Luigi
  • Straume, Odd Rune

Abstract

We investigate the effect of competition on quality in health care markets with regulated prices taking a differential game approach, in which quality is a stock variable. Using a Hotelling framework, we derive the open-loop solution (health care providers set the optimal investment plan at the initial period) and the feedback closed-loop solution (providers move investments in response to the dynamics of the states). Under the closed-loop solution competition is more intense in the sense that providers observe quality in each period and base their investment on this information. If the marginal provision cost is constant, the open-loop and closed-loop solutions coincide, and the results are similar to the ones obtained by static models. If the marginal provision cost is increasing, investment and quality are lower in the closed-loop solution (when competition is more intense). In this case, static models tend to exaggerate the positive effect of competition on quality.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 29 (2010)
Issue (Month): 4 (July)
Pages: 508-523

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Handle: RePEc:eee:jhecon:v:29:y:2010:i:4:p:508-523

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Web page: http://www.elsevier.com/locate/inca/505560

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Keywords: Health care markets Competition Quality;

References

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Citations

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Cited by:
  1. Hiroshi Aiura, 2013. "Inter-regional competition and quality in hospital care," The European Journal of Health Economics, Springer, vol. 14(3), pages 515-526, June.
  2. 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.
  3. Guccio, Calogero & Lisi, Domenico & Pignataro, Giacomo, 2014. "Readmission and Hospital Quality under Prospective Payment System," MPRA Paper 56490, University Library of Munich, Germany.
  4. Bardey, David & Canta, Chiara & Lozachmeur, Jean-Marie, 2012. "The regulation of health care providers’ payments when horizontal and vertical differentiation matter," Journal of Health Economics, Elsevier, vol. 31(5), pages 691-704.

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