Price regulation of pluralistic markets subject to provider collusion
AbstractWe analyse incentives for collusive behaviour when heterogeneous providers are faced with regulated prices under two forms of yardstick competition, namely discriminatory and uniform schemes. Providers are heterogeneous in the degree to which their interests correspond to those of the regulator, with close correspondence labelled altruism. Deviation of interests may arise as a result of de-nationalisation or when private providers enter predominantly public markets. We assess how provider strategies and incentives to collude relate to provider characteristics and across different market structures. We differentiate between “pure” markets with either only self-interested providers or with only altruistic providers and “pluralistic” markets with a mix of provider type. We find that the incentive for collusion under a discriminatory scheme increases in the degree to which markets are self-interested whereas under a uniform scheme the likelihood increases in the degree of provider homogeneity. Providers’ choice of cost also depends on the yardstick scheme and market structure. In general, costs are higher under the uniform scheme, reflecting its weaker incentives. In a pluralistic market under the discriminatory scheme each provider’s choice of cost is decreasing in the degree of the other provider’s altruism, so a self-interested provider will operate at a lower cost than an altruistic provider. Under the uniform scheme providers always choose to operate at the same cost. The prospect of defection serves to moderate the chosen level of operating cost.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Centre for Health Economics, University of York in its series Working Papers with number 045cherp.
Length: 25 pages
Date of creation: Dec 2008
Date of revision:
Other versions of this item:
- Longo, R & Miraldo, M & Street, A, 2009. "Price regulation of pluralistic markets subject to provider collusion," Working Papers 1454, Imperial College, London, Imperial College Business School.
- NEP-ALL-2009-01-03 (All new papers)
- NEP-COM-2009-01-03 (Industrial Competition)
- NEP-REG-2009-01-03 (Regulation)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Edward L. Glaeser & Andrei Shleifer, 1998.
Harvard Institute of Economic Research Working Papers
1852, Harvard - Institute of Economic Research.
- Tangerås, Thomas P., 1999.
"Collusion-Proof Yardstick Competition,"
674, Stockholm University, Institute for International Economic Studies.
- Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, vol. 38(113), pages 1-12, January.
- Boardman, Anthony & Freedman, Ruth & Eckel, Catherine, 1986. "The price of government ownership : A study of the Domtar takeover," Journal of Public Economics, Elsevier, vol. 31(3), pages 269-285, December.
- Barla, Philippe, 1997.
"Firm Size Inequality and Market Power,"
Cahiers de recherche
9714, Université Laval - Département d'économique.
- Rothschild, R., 1999. "Cartel stability when costs are heterogeneous," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 717-734, July.
- Stephen Davies & Matthew Olczak, 2008. "Tacit versus Overt Collusion Firm Asymmetries and Numbers: What’s the Evidence?," Working Papers 08-32, Centre for Competition Policy, University of East Anglia.
- Jonas Schreyögg & Tom Stargardt & Oliver Tiemann & Reinhard Busse, 2006. "Methods to determine reimbursement rates for diagnosis related groups (DRG): A comparison of nine European countries," Health Care Management Science, Springer, vol. 9(3), pages 215-223, August.
- Mónica Duarte Oliveira & Carlos Gouveia Pinto, 2005. "Health care reform in Portugal: an evaluation of the NHS experience," Health Economics, John Wiley & Sons, Ltd., vol. 14(S1), pages S203-S220.
- Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, January.
- Potters, Jan & Rockenbach, Bettina & Sadrieh, Abdolkarim & van Damme, Eric, 2004.
"Collusion under yardstick competition: an experimental study,"
International Journal of Industrial Organization,
Elsevier, vol. 22(7), pages 1017-1038, September.
- Damme, E.E.C. van & Potters, J.J.M. & Rockenbach, B. & Sadrieh, A., 2003. "Collusion under Yardstick Competition: An Experimental Study," Discussion Paper 2003-009, Tilburg University, Tilburg Law and Economic Center.
- Potters, J.J.M. & Rockenbach, B. & Sadrieh, A. & Damme, E.E.C. van, 2003. "Collusion under Yardstick Competition: An Experimental Study," Discussion Paper 2003-97, Tilburg University, Center for Economic Research.
- Potters, J.J.M. & Rockenbach, B. & Sadrieh, A. & Damme, E.E.C. van, 2004. "Collusion under yardstick competition: An experimental study," Open Access publications from Tilburg University urn:nbn:nl:ui:12-141666, Tilburg University.
- Compte, Olivier & Jenny, Frederic & Rey, Patrick, 2002. "Capacity constraints, mergers and collusion," European Economic Review, Elsevier, vol. 46(1), pages 1-29, January.
- Ching-to Albert Ma, 1994.
"Health Care Payment Systems: Cost and Quality Incentives,"
0047, Boston University - Industry Studies Programme.
- Ma, Ching-to Albert, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 93-112, Spring.
- Susan Rose-Ackerman, 1996. "Altruism, Nonprofits, and Economic Theory," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 701-728, June.
- Pope, Gregory C., 1989. "Hospital nonprice competition and medicare reimbursement policy," Journal of Health Economics, Elsevier, vol. 8(2), pages 147-172, June.
- Andrew Street & Kirsi Vitikainen & Afsaneh Bjorvatn & Anne Hvenegaard, 2007. "Introducing activity-based financing: a review of experience in Australia, Denmark, Norway and Sweden," Working Papers 030cherp, Centre for Health Economics, University of York.
- Martin Janíčko & Ivo Koubek, 2012. "Information Assymetry and Double Standard in the Doctor-Patient Relationship," Politická ekonomie, University of Economics, Prague, vol. 2012(3), pages 362-379.
- Jana Chvalkovská & Petr Janský & Jiří Skuhrovec, 2012. "Bearer Shares in Paper Form and Public Procurement," Politická ekonomie, University of Economics, Prague, vol. 2012(3), pages 349-361.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Frances Sharp).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.