Pricing and Assortment Strategies with Product Exchanges

Problem definition : This study examines the relationship between organizational focus, diversification of services, and consumer choice in the market for healthcare services. Academic/practical relevance : While previous studies have examined the roles of focus and diversification in efficiency and quality of care, their role in patient choice has received less attention. Methods : We use hospital inpatient data from the state of Florida for the years 2006–2010 to examine this problem in the context of obstetrics services. Results : Patients are more likely to choose hospitals that specialize in obstetrics services. They also show preferences for diversification across hospital units but not diversification within the focal unit. Specifically, they prefer hospitals offering wider ranges of services for newborns, which often involve different departments in the hospital but do not prefer hospitals offering wider ranges of obstetrics services. Managerial implications : Hospitals can gain an advantage by focusing on a small set of services. However, focus has important limits, as patients may have needs that cut across medical specialties and prefer facilities that can serve these sometimes complex needs. We discuss potential implications for hospital performance.