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Price and Quality Competition under Adverse Selection: Market Organization and Efficiency

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  • Biglaiser, Gary
  • Ma, Ching-to Albert

Abstract

Firms compete with prices and qualities in markets where consumers have heterogeneous preferences and cost characteristics. Consumers demand two goods, which can be supplied jointly or separately by firms. We consider two strategy regimes for firms: uniform price-quality pairs, and screening price-quality menus. For each regime, we compare the equilibria under integration (each firm supplying both goods) and separation (each firm supplying one good). Integrating and separating markets change quality, efficiency, and welfare. The theory illustrates phenomena such as the carveout of mental health and substance abuse coverage from general health insurance, and creaming for low-cost students in locales with school choices. Copyright 2003 by the RAND Corporation.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 34 (2003)
Issue (Month): 2 (Summer)
Pages: 266-86

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Handle: RePEc:rje:randje:v:34:y:2003:i:2:p:266-86

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Cited by:
  1. Daron Acemoglu & Asuman Ozdaglar, 2011. "Opinion Dynamics and Learning in Social Networks," Dynamic Games and Applications, Springer, vol. 1(1), pages 3-49, March.
  2. Hart Hodges & Steven Henson, 2009. "Medical Reimbursements and Patient Selection by Physicians: A Capital-Theoretic Approach," Atlantic Economic Journal, International Atlantic Economic Society, vol. 37(4), pages 397-408, December.
  3. William Jack(Georgetown University), 2004. "Optimal risk adjustment in a model with adverse selection and spatial competition," Working Papers gueconwpa~04-04-15, Georgetown University, Department of Economics.
  4. Michele Moretto & Rosella Levaggi, 2004. "Investment in Hospital Care Technology under Different Purchasing Rules: A Real Option Approach," Working Papers 2004.75, Fondazione Eni Enrico Mattei.
  5. Pau Olivella & Marcos Vera-Hernandez, 2010. "How complex are the contracts offered by health plans?," SERIEs, Spanish Economic Association, vol. 1(3), pages 305-323, July.
  6. Rosella Levaggi, 2007. "Regulating internal markets for hospital care," Journal of Regulatory Economics, Springer, vol. 32(2), pages 173-193, October.
  7. Rosella Levaggi, 2005. "Hospital Health Care: Pricing and Quality Control in a Spatial Model with Asymmetry of Information," International Journal of Health Care Finance and Economics, Springer, vol. 5(4), pages 327-349, December.
  8. Olivella, Pau & Vera-Hernandez, Marcos, 2007. "Competition among differentiated health plans under adverse selection," Journal of Health Economics, Elsevier, vol. 26(2), pages 233-250, March.
  9. Rosella Levaggi & Marcello Montefiori, 2013. "Patient selection in a mixed oligopoly market for health care: the role of the soft budget constraint," International Review of Economics, Springer, vol. 60(1), pages 49-70, March.
  10. Jack, William, 2006. "Optimal risk adjustment with adverse selection and spatial competition," Journal of Health Economics, Elsevier, vol. 25(5), pages 908-926, September.

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