Entry and Competition in Local Hospital Markets
AbstractThere has been considerable consolidation in the hospital industry in recent years. Over 900 deals occurred from 1994-2000, and many local markets, even in large urban areas, have been reduced to monopolies, duopolies or triopolies. This surge in consolidation has led to concern about its effect on competition in local markets for hospital services. In this paper we examine the impact of market structure on competition in local hospital markets – specifically, does competition increase with the number of firms? We extend the entry model developed by Bresnahan and Reiss to make use of quantity information and apply it to data on the US hospital industry. The results from the estimation are striking. In the hospital markets we examine, entry leads to markets quickly becoming competitive. Entry reduces variable profits and increases quality. Indeed, most of the effects of entry come from having a second and possibly a third firm enter the market. The use of quantity information allows us to infer that entry is welfare increasing.
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Bibliographic InfoPaper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 03/088.
Length: 31 pages
Date of creation: May 2003
Date of revision:
analysis of health care markets;
Other versions of this item:
- Jean M. Abraham & Martin S. Gaynor & William B. Vogt, 2005. "Entry and Competition in Local Hospital Markets," NBER Working Papers 11649, National Bureau of Economic Research, Inc.
- Jean Abraham & Martin Gaynor & William B. Vogt, 2005. "Entry and Competition in Local Hospital Markets," GSIA Working Papers 1999-E32, Carnegie Mellon University, Tepper School of Business.
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-03 (All new papers)
- NEP-COM-2003-11-03 (Industrial Competition)
- NEP-ENT-2003-11-09 (Entrepreneurship)
- NEP-HEA-2004-07-11 (Health Economics)
- NEP-IND-2004-07-26 (Industrial Organization)
- NEP-MFD-2003-11-03 (Microfinance)
- NEP-URE-2003-11-03 (Urban & Real Estate Economics)
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