Duopoly Competition and Regulation in a Two-Sided Health Care Insurance Market with Product Differentiation
AbstractWe compare duopoly competition with a regulated public monopoly in the health care insurance sector using the two-sided market approach. Health plans allow policyholders and physicians to interact. Policyholders have a preference for one of two health plans and value the diversity of physicians. Physicians value the number of policyholders because they are paid on a fee-for-service basis. This is a positive network externality. We find that the resulting Nash equilibria are explained by the two standard effects of product differentiation: the price competition effect and the market share effect, and by two opposing effects related to the network externality. We call these the positive earning effect and the negative spending effect. Overall the comparison between the two types of organizations shows that regulation is preferred when the physicians' market is not covered and competition is preferred when it is covered. But each time the choice is made at the expense of one type of agent.
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Bibliographic InfoPaper provided by CRESE in its series Working Papers with number 2013-02.
Length: 25 pages
Date of creation: Mar 2013
Date of revision:
Two-Sided Markets; Managed Care Competition; Network Effects; Product Differentiation; Hotelling; Public Policy;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
- NEP-COM-2013-03-23 (Industrial Competition)
- NEP-GTH-2013-03-23 (Game Theory)
- NEP-IAS-2013-03-23 (Insurance Economics)
- NEP-IND-2013-03-23 (Industrial Organization)
- NEP-REG-2013-03-23 (Regulation)
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