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 U.S. hospital industry. The results from the estimation are striking. In the hospital markets we examine, entry leads to markets becoming competitive quickly. Entry reduces variable profits and increases quantity. 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 consumer welfare increasing.
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Bibliographic InfoPaper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 1999-E32.
Date of creation: Oct 2005
Date of revision:
Contact details of provider:
Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
Web page: http://www.tepper.cmu.edu/
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 Marie Abraham & Martin Gaynor & William B Vogt, 2003. "Entry and Competition in Local Hospital Markets," The Centre for Market and Public Organisation 03/088, Department of Economics, University of Bristol, UK.
- I1 - Health, Education, and Welfare - - Health
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L8 - Industrial Organization - - Industry Studies: Services
This paper has been announced in the following NEP Reports:
- NEP-ALL-2000-09-05 (All new papers)
- NEP-HEA-2000-09-05 (Health Economics)
- NEP-IND-2000-09-05 (Industrial Organization)
- NEP-REG-2000-09-01 (Regulation)
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