Selective contracting and foreclosure in health care markets
AbstractThis paper provides an analysis of exclusive contracts between health care providers and insurers in a model where some consumers choose to stay uninsured. In case of a monopoly insurer, exclusion of a provider changes the distribution of consumers who choose not to insure. Although the foreclosed care provider remains active in the market for the non-insured, we show that exclusion leads to anti-competitive effects on this non-insured market. As a consequence exclusion can raise industry profits, and then occurs in equilibrium. Under competitive insurance markets, the anticompetitive exclusive equilibrium survives. Uninsured consumers, however, are now not better off without exclusion. Competition among insurers raises prices in equilibria without exclusion, as a result of a horizontal analogue to the double marginalization effect. Instead, under competitive insurance markets exclusion is desirable as long as no provider is excluded by all insurers.
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Bibliographic InfoPaper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 140.
Date of creation: Feb 2010
Date of revision:
Other versions of this item:
- Bijlsma, Michiel & Boone, Jan & Zwart, Gijsbert, 2009. "Selective contracting and foreclosure in health care markets," CEPR Discussion Papers 7576, C.E.P.R. Discussion Papers.
- Bijlsma, M. & Boone, J. & Zwart, G., 2009. "Selective Contracting and Foreclosure in Health Care Markets," Discussion Paper 2009-89, Tilburg University, Center for Economic Research.
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-17 (All new papers)
- NEP-COM-2010-04-17 (Industrial Competition)
- NEP-HEA-2010-04-17 (Health Economics)
- NEP-IAS-2010-04-17 (Insurance Economics)
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