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Do Nonprofit Hospitals Exercise Market Power?

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  • John Simpson
  • Richard Shin

Abstract

Several theories of nonprofit hospitals behavior predict that nonprofit hospitals behave in the consumer interest and thus do not exercise market power. If these theories are correct, then antitrust enforcement of hospital mergers should be restricted only to those markets in which a nonprofit hospital cannot offset anticompetitive behavior by for-profit hospitals. In this paper, we examine the relationship between price and market concentration among nonprofit hospitals in California in 1993. We find that nonprofit hospitals set higher prices in more concentrated markets. This result suggests that antitrust enforcement should challenge those mergers of nonprofit hospitals that create market power without creating offsetting efficiencies.

Suggested Citation

  • John Simpson & Richard Shin, 1998. "Do Nonprofit Hospitals Exercise Market Power?," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 5(2), pages 141-157.
    • Handle: RePEc:taf:ijecbs:v:5:y:1998:i:2:p:141-157
    DOI: 10.1080/13571519884486
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    References listed on IDEAS

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    Cited by:

    1. Seth Sacher & Louis Silvia, 1998. "Antitrust Issues in Defining the Product Market for Hospital Services," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 5(2), pages 181-202.
    2. R. Halbersma & M. Mikkers & E. Motchenkova & I. Seinen, 2011. "Market structure and hospital–insurer bargaining in the Netherlands," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 12(6), pages 589-603, December.
    3. Martin Gaynor & Deborah Haas-Wilson, 1999. "Change, Consolidation, and Competition in Health Care Markets," Journal of Economic Perspectives, American Economic Association, vol. 13(1), pages 141-164, Winter.
    4. Cory S. Capps & Dennis W. Carlton & Guy David, 2020. "Antitrust Treatment Of Nonprofits: Should Hospitals Receive Special Care?," Economic Inquiry, Western Economic Association International, vol. 58(3), pages 1183-1199, July.
    5. Gaynor, Martin & Vogt, William B., 2000. "Antitrust and competition in health care markets," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 27, pages 1405-1487, Elsevier.
    6. Akosa Antwi Yaa & Gaynor Martin S & Vogt William B, 2009. "A Bargain at Twice the Price? California Hospital Prices in the New Millennium," Forum for Health Economics & Policy, De Gruyter, vol. 12(1), pages 1-23, July.
    7. Searing Elizabeth A. M., 2014. "Charitable (Anti)Trust: The Role of Antitrust Regulation in the Nonprofit Sector," Nonprofit Policy Forum, De Gruyter, vol. 5(2), pages 1-28, October.
    8. Peter Zaleski & Alfredo Esposto, 2007. "The Response to Market Power: Non-Profit Hospitals versus For-Profit Hospitals," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(3), pages 315-325, September.
    9. Lauren Russell, 2021. "Price Effects of Nonprofit College and University Mergers," The Review of Economics and Statistics, MIT Press, vol. 103(1), pages 88-101, March.
    10. Tomas J. Philipson & Richard A. Posner, 2009. "Antitrust in the Not-for-Profit Sector," Journal of Law and Economics, University of Chicago Press, vol. 52(1), pages 1-18, February.
    11. Chowdhury, Hedayet & Zelenyuk, Valentin, 2016. "Performance of hospital services in Ontario: DEA with truncated regression approach," Omega, Elsevier, vol. 63(C), pages 111-122.
    12. Berden, Carolien & Croes, R. & Kemp, R. & Mikkers, Misja & van der Noll, Rob & Shestalova, V. & Svitak, Jan, 2019. "Hospital Competition in the Netherlands : An Empirical Investigation," Discussion Paper 2019-008, Tilburg University, Tilburg Law and Economic Center.
    13. Pierre Koning & Joëlle Noailly & Sabine Visser, 2007. "Do Not-For-Profits Make a Difference in Social Services? A Survey Study," De Economist, Springer, vol. 155(3), pages 251-270, September.
    14. Jomon A. Paul & Benedikt Quosigk & Leo MacDonald, 2019. "Factors Impacting Market Concentration of Not-for-Profit Hospitals," Journal of Business Ethics, Springer, vol. 154(2), pages 517-535, January.
    15. Paula James, 2002. "Concentration and Pricing in the Hospital Sector," Working Papers 02-08, New York University, Leonard N. Stern School of Business, Department of Economics.
    16. Rexford E. Santerre & John A. Vernon, 2006. "The consumer welfare implications of the hospital ownership mix in the US: an exploratory study," Health Economics, John Wiley & Sons, Ltd., vol. 15(11), pages 1187-1199, November.
    17. Burgess, James Jr. & Carey, Kathleen & Young, Gary J., 2005. "The effect of network arrangements on hospital pricing behavior," Journal of Health Economics, Elsevier, vol. 24(2), pages 391-405, March.
    18. Capps, Cory S. & Carlton, Dennis W. & David, Guy, 2010. "Antitrust Treatment of Nonprofits: Should Hospitals Receive Special Care?," Working Papers 232, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    19. Janet Currie & Mehdi Farsi & W. Bentley Macleod, 2005. "Cut to the Bone? Hospital Takeovers and Nurse Employment Contracts," ILR Review, Cornell University, ILR School, vol. 58(3), pages 471-493, April.
    20. Dranove, David & Ludwick, Richard, 1999. "Competition and pricing by nonprofit hospitals: a reassessment of Lynk's analysis," Journal of Health Economics, Elsevier, vol. 18(1), pages 87-98, January.
    21. Guy David, 2009. "The convergence between for-profit and nonprofit hospitals in the United States," International Journal of Health Economics and Management, Springer, vol. 9(4), pages 403-428, December.

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