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Assessing Competition in Hospital Care Markets: The Importance of Accounting for Quality Differentiation

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Author Info
 Tay, Abigail
Abstract

Quality differentiation is especially important in the hospital industry, where the choices of Medicare patients are unaffected by prices. Unlike previous studies that use geographic market concentration to estimate hospital competitiveness, this article emphasizes the importance of quality differentiation in this spatially differentiated market. I estimate a random-coefficients discrete-choice model that predicts patient flow to different hospitals and find that demand responses to both distance and quality are substantial. The estimates suggest that patients do not substitute toward alternative hospitals in proportion to current market shares, implying that geographic market concentration is an inappropriate measure of hospital competitiveness. Copyright 2003 by the RAND Corporation.

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

Volume (Year): 34 (2003)
Issue (Month): 4 (Winter)
Pages: 786-814
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Handle: RePEc:rje:randje:v:34:y:2003:i:4:p:786-814

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  1. Moscone, Francesco & Tosetti, Elisa & Vittadini, Giorgio, 2009. "Social Interaction in Patients'’Hospital Choice: Evidences from Italy," MPRA Paper 17783, University Library of Munich, Germany. [Downloadable!]
  2. Martin Gaynor, 2006. "What Do We know About Competition and Quality in Health Care Markets?," The Centre for Market and Public Organisation 06/151, Department of Economics, University of Bristol, UK. [Downloadable!]
    Other versions:
  3. Carol Propper & Deborah Wilson & Simon Burgess, 2005. "Extending Choice In English Health Care: The implications of the economic evidence," The Centre for Market and Public Organisation 05/133, Department of Economics, University of Bristol, UK. [Downloadable!]
    Other versions:
  4. Justin G. Trogdon, 2004. "Regionalization of Cardiac Services and the Responsiveness of Treatment Choices," HEW 0411001, EconWPA. [Downloadable!]
  5. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2007. "Competition and Waiting Times in Hospital Markets," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  6. Daniel P. Kessler & Jeffrey J. Geppert, 2005. "The Effects of Competition on Variation in the Quality and Cost of Medical Care," NBER Working Papers 11226, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Brekke, Kurt Richard & Cellini, Roberto & Siciliani, Luigi & Straume, Odd Rune, 2008. "Competition and Quality in Regulated Markets: a Differential-Game Approach," CEPR Discussion Papers 6801, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Brekke, Kurt Richard & Cellini, Roberto & Siciliani, Luigi & Straume, Odd Rune, 2008. "Competition and quality in regulated markets with sluggish demand," CEPR Discussion Papers 6938, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  9. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2009. "Hospital Competition and Quality with Regulated Prices," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  10. Alfons Palangkaraya & Jongsay Yong, 2009. "Hospital Markets and the Effect of Competition on Quality," Melbourne Institute Working Paper Series wp2009n17, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
  11. Katherine Ho, 2006. "The welfare effects of restricted hospital choice in the US medical care market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1039-1079. [Downloadable!]
  12. Leemore S. Dafny, 2005. "Estimation and Identification of Merger Effects: An Application to Hospital Mergers," NBER Working Papers 11673, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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