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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 and 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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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. Bresnahan, Timothy F., 1982. "The oligopoly solution concept is identified," Economics Letters, Elsevier, vol. 10(1-2), pages 87-92.
  3. 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.
  4. 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.
  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. David Dranove & Mark Shanley & Carol Simon, 1992. "Is Hospital Competition Wasteful?," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 247-262, Summer.
  7. Martin Gaynor & Robert J. Town, 2011. "Competition in Health Care Markets," NBER Working Papers 17208, National Bureau of Economic Research, Inc.
  8. 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.
  9. 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.
  10. Case, Anne, 1992. "Neighborhood influence and technological change," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 491-508, September.
  11. 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.
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Cited by:
  1. 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.
  2. 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.
  3. 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.

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