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Can hospitals compete on quality?

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  • Somayeh Sadat
  • Hossein Abouee-Mehrizi
  • Michael Carter

Abstract

In this paper, we consider two hospitals with different perceived quality of care competing to capture a fraction of the total market demand. Patients select the hospital that provides the highest utility, which is a function of price and the patient’s perceived quality of life during their life expectancy. We consider a market with a single class of patients and show that depending on the market demand and perceived quality of care of the hospitals, patients may enjoy a positive utility. Moreover, hospitals share the market demand based on their perceived quality of care and capacity. We also show that in a monopoly market (a market with a single hospital) the optimal demand captured by the hospital is independent of the perceived quality of care. We investigate the effects of different parameters including the market demand, hospitals’ capacities, and perceived quality of care on the fraction of the demand that each hospital captures using some numerical examples. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Somayeh Sadat & Hossein Abouee-Mehrizi & Michael Carter, 2015. "Can hospitals compete on quality?," Health Care Management Science, Springer, vol. 18(3), pages 376-388, September.
    • Handle: RePEc:kap:hcarem:v:18:y:2015:i:3:p:376-388
    DOI: 10.1007/s10729-015-9319-1
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    References listed on IDEAS

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    Cited by:

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    3. Liyong Lu & Jay Pan, 2021. "Does hospital competition lead to medical equipment expansion? Evidence on the medical arms race," Health Care Management Science, Springer, vol. 24(3), pages 582-596, September.

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