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Spatial Interaction, Spatial Multipliers and Hospital Competition

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Author Info

  • Lee Mobley
  • H. E. Frech
  • Luc Anselin

Abstract

The hospital competition literature shows that estimates of the effect of local market structure (concentration) on pricing (competition) are sensitive to geographic market definition. Our spatial lag model approach effects smoothing of the explanatory variables across the discrete market boundaries, resulting in robust estimates of the impact of market structure on hospital pricing, which can be used to estimate the full effect of changes in prices inclusive of spillovers that cascade through the neighboring hospital markets. The full amount, generated by the spatial multiplier effect, is a robust estimate of the impacts of market factors on hospital competition. We contrast ordinary least squares and spatial lag estimates to demonstrate the importance of robust estimation in analysis of hospital market competition. In markets where concentration is relatively high before a proposed merger, we demonstrate that Ordinary Least Squares (OLS) can lead to the wrong policy conclusion while the more conservative lag estimates do not.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 16 (2009)
Issue (Month): 1 ()
Pages: 1-17

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Handle: RePEc:taf:ijecbs:v:16:y:2009:i:1:p:1-17

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Web page: http://www.tandfonline.com/CIJB20

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Related research

Keywords: Spatial Econometrics; Hospital Competition; Market Size; Market Extent; Market Boundary;

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References

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  1. Martin Gaynor & William B. Vogt, 1999. "Antitrust and Competition in Health Care Markets," NBER Working Papers 7112, National Bureau of Economic Research, Inc.
  2. Won Kim, Chong & Phipps, Tim T. & Anselin, Luc, 2003. "Measuring the benefits of air quality improvement: a spatial hedonic approach," Journal of Environmental Economics and Management, Elsevier, vol. 45(1), pages 24-39, January.
  3. Dranove, David & Shanley, Mark, 1990. "A note on the relational aspects of hospital market definitions," Journal of Health Economics, Elsevier, vol. 8(4), pages 473-478, February.
  4. Martin Gaynor & Robert J Town, 2012. "Competition in Health Care Markets," The Centre for Market and Public Organisation 12/282, Department of Economics, University of Bristol, UK.
  5. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
  6. Jan K. Brueckner & Luz A. Saavedra, 2000. "Do Local Governments Engage in Strategic Property-Tax Competition?," Econometric Society World Congress 2000 Contributed Papers 0357, Econometric Society.
  7. Case, Anne, 1992. "Neighborhood influence and technological change," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 491-508, September.
  8. Brueckner, Jan K., 1998. "Testing for Strategic Interaction Among Local Governments: The Case of Growth Controls," Journal of Urban Economics, Elsevier, vol. 44(3), pages 438-467, November.
  9. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
  10. Saavedra, Luz Amparo, 2000. "A Model of Welfare Competition with Evidence from AFDC," Journal of Urban Economics, Elsevier, vol. 47(2), pages 248-279, March.
  11. Cory S. Capps & David Dranove & Shane Greenstein & Mark Satterthwaite, 2001. "The Silent Majority Fallacy of the Elzinga-Hogarty Criteria: A Critique and New Approach to Analyzing Hospital Mergers," NBER Working Papers 8216, National Bureau of Economic Research, Inc.
  12. Lau, Lawrence J., 1982. "On identifying the degree of competitiveness from industry price and output data," Economics Letters, Elsevier, vol. 10(1-2), pages 93-99.
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Citations

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Cited by:
  1. Sánchez Navarro, Dennis, 2012. "Una propuesta metodológica para la definición de mercados geográficos relevantes
    [A proposed methodology for defining relevant geographic markets]
    ," MPRA Paper 44498, University Library of Munich, Germany.
  2. Iwata, Shinichiro & Sumita, Kazuto & Fujisawa, Mieko, 2012. "Price competition in the spatial real estate market: Allies or rivals?," MPRA Paper 37438, University Library of Munich, Germany.
  3. Dieter Pennerstorfer, 2014. "Price and Quality Competition in Spatial Markets. The Case of Camping Sites," WIFO Working Papers 466, WIFO.
  4. Hugh Gravelle & Rita Santos & Luigi Siciliani, 2013. "Does a hospitals quality depend on the quality of other hospitals? A spatial econometrics approach to investigating hospital quality competition," Working Papers 082cherp, Centre for Health Economics, University of York.
  5. Hugh Gravelle & Rita Santos & Luigi Siciliani & Rosalind Goudie, 2012. "Hospital Quality Competition Under Fixed Prices," Working Papers 080cherp, Centre for Health Economics, University of York.
  6. Mark Burkey, 2012. "Decomposing geographic accessibility into component parts: methods and an application to hospitals," The Annals of Regional Science, Springer, vol. 48(3), pages 783-800, June.

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