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Competition between For-Profit and Nonprofit Health Care Providers and Quality

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  • Rune Stenbacka
  • Mihkel Tombak

Abstract

We develop a model including many features of health care systems: a limited number of approved treatments of certain qualities, insurance schemes reimbursing costs of a standard service, and nonprofit organizations competing with for-profit suppliers. All the equilibria exhibit quality differentiation, and the nonprofit captures a higher market share. Nonprofits (for-profits) supply the standard service when the quality upgrade induces a sufficiently high (low) increase in production costs. When the nonprofit provides the standard quality, all patients are served. In contrast, in a for-profit duopoly the standard-quality provider charges a price premium, implying that there are excluded consumers.

Suggested Citation

  • Rune Stenbacka & Mihkel Tombak, 2020. "Competition between For-Profit and Nonprofit Health Care Providers and Quality," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 176(2), pages 243-275.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2020-0002
    DOI: 10.1628/jite-2020-0002
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    More about this item

    Keywords

    nonprofit organizations; health care quality; competition between for-profits and nonprofits; exclusion; quality differentiation; mixed duopoly;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L30 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - General

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