Price and Quality Competition under Adverse Selection: Market Organization and Efficiency
AbstractFirms compete with prices and qualities in markets where consumers have heterogeneous preferences and cost characteristics. Consumers demand two goods, which can be supplied jointly or separately by firms. We consider two strategy regimes for firms: uniform price-quality pairs, and screening price-quality menus. For each regime, we compare the equilibria under integration (each firm supplying both goods) and separation (each firm supplying one good). Integrating and separating markets change quality, efficiency, and welfare. The theory illustrates phenomena such as the carveout of mental health and substance abuse coverage from general health insurance, and creaming for low-cost students in locales with school choices. Copyright 2003 by the RAND Corporation.
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Bibliographic InfoPaper provided by Boston University - Industry Studies Programme in its series Papers with number 0102.
Date of creation: May 2000
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Postal: Boston University, Industry Studies Program; Department of Economics, 270 Bay Road, Boston, Massachusetts 02215.
Web page: http://www.bu.edu/econ/isp/
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- Biglaiser, Gary & Ma, Ching-to Albert, 2003. " Price and Quality Competition under Adverse Selection: Market Organization and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 266-86, Summer.
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- Jack, William, 2006. "Optimal risk adjustment with adverse selection and spatial competition," Journal of Health Economics, Elsevier, vol. 25(5), pages 908-926, September.
- William Jack(Georgetown University), 2004. "Optimal risk adjustment in a model with adverse selection and spatial competition," Working Papers gueconwpa~04-04-15, Georgetown University, Department of Economics.
- Hart Hodges & Steven Henson, 2009. "Medical Reimbursements and Patient Selection by Physicians: A Capital-Theoretic Approach," Atlantic Economic Journal, International Atlantic Economic Society, vol. 37(4), pages 397-408, December.
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- Rosella Levaggi & Marcello Montefiori, 2013. "Patient selection in a mixed oligopoly market for health care: the role of the soft budget constraint," International Review of Economics, Springer, vol. 60(1), pages 49-70, March.
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- Rosella Levaggi, 2005. "Hospital Health Care: Pricing and Quality Control in a Spatial Model with Asymmetry of Information," International Journal of Health Care Finance and Economics, Springer, vol. 5(4), pages 327-349, December.
- Pau Olivella & Marcos Vera-Hernandez, 2010. "How complex are the contracts offered by health plans?," SERIEs, Spanish Economic Association, vol. 1(3), pages 305-323, July.
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