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Can competition reduce quality?

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Author Info

  • Brekke, Kurt R.

    ()
    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Siciliani, Luigi

    ()
    (University of York)

  • Straume, Odd Rune

    ()
    (University of Minho)

Abstract

We study the e¤ect of competition on quality in markets such as health care, long-term care and education, when providers choose both prices and quality in a setting of spatial competition. We o¤er a novel mechanism whereby competition leads to lower quality. This mechanism relies on two key assumptions, namely that the providers are motivated and risk-averse. Our proposed mechanism can help explain several empirical …ndings of a negative e¤ect of competition on quality.

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Bibliographic Info

Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 9/2012.

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Length: 9 pages
Date of creation: 02 Apr 2012
Date of revision:
Handle: RePEc:hhs:nhheco:2012_009

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Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 959 277
Fax: 5595 9100
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Web page: http://www.nhh.no/sam/
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Keywords: Quality and price competition; Motivated providers; Risk-averse providers.;

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References

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  1. Eggleston, Karen, 2005. "Multitasking and mixed systems for provider payment," Journal of Health Economics, Elsevier, vol. 24(1), pages 211-223, January.
  2. Chalkley, Martin & Malcomson, James M., 1998. "Contracting for health services when patient demand does not reflect quality," Journal of Health Economics, Elsevier, vol. 17(1), pages 1-19, January.
  3. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2007. "Competition and Waiting Times in Hospital Markets," CESifo Working Paper Series 2124, CESifo Group Munich.
  4. Brekke, Kurt Richard & Siciliani, Luigi & Straume, Odd Rune, 2009. "Price and quality in spatial competition," CEPR Discussion Papers 7422, C.E.P.R. Discussion Papers.
  5. Asplund, Marcus, 1995. "Risk-Averse Firms in Oligopoly," Working Paper Series in Economics and Finance 69, Stockholm School of Economics, revised 21 Sep 1999.
  6. Timothy Besley & Maitreesh Ghatak, 2003. "Competition and incentives with motivated agents," LSE Research Online Documents on Economics 2202, London School of Economics and Political Science, LSE Library.
  7. Propper, Carol & Burgess, Simon & Green, Katherine, 2004. "Does competition between hospitals improve the quality of care?: Hospital death rates and the NHS internal market," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1247-1272, July.
  8. Martin Gaynor, 2006. "What Do We know About Competition and Quality in Health Care Markets?," The Centre for Market and Public Organisation 06/151, Department of Economics, University of Bristol, UK.
  9. Burgess, Simon & Gossage, Denise & Propper, Carol, 2003. "Competition and Quality: Evidence from the NHS Internal Market 1991-9," CEPR Discussion Papers 4026, C.E.P.R. Discussion Papers.
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  12. Barreda-Tarrazona, Iván & García-Gallego, Aurora & Georgantzís, Nikolaos & Andaluz-Funcia, Joaquín & Gil-Sanz, Agustín, 2011. "An experiment on spatial competition with endogenous pricing," International Journal of Industrial Organization, Elsevier, vol. 29(1), pages 74-83, January.
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  16. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2009. "Hospital Competition and Quality with Regulated Prices," CESifo Working Paper Series 2635, CESifo Group Munich.
  17. Ching-to Ma & James Burgess, 1993. "Quality competition, welfare, and regulation," Journal of Economics, Springer, vol. 58(2), pages 153-173, June.
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  19. Josse Delfgaauw & Robert Dur, 2004. "Incentives and Workers' Motivation in the Public Sector," Tinbergen Institute Discussion Papers 04-060/1, Tinbergen Institute.
  20. Hviid, Morten, 1989. "Risk-Averse Duopolists and Voluntary Information Transmission," Journal of Industrial Economics, Wiley Blackwell, vol. 38(1), pages 49-64, September.
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  22. Makris, Miltiadis, 2009. "Incentives for motivated agents under an administrative constraint," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 428-440, August.
  23. Stefan Felder, 2009. "The variance of length of stay and the optimal DRG outlier payments," International Journal of Health Care Finance and Economics, Springer, vol. 9(3), pages 279-289, September.
  24. David C. Grabowski, 2004. "A Longitudinal Study of Medicaid Payment, Private-Pay Price and Nursing Home Quality," International Journal of Health Care Finance and Economics, Springer, vol. 4(1), pages 5-26, 03.
  25. Canice Prendergast, 2007. "The Motivation and Bias of Bureaucrats," American Economic Review, American Economic Association, vol. 97(1), pages 180-196, March.
  26. Janssen, Maarten C.W. & Karamychev, Vladimir A., 2009. "Auctions, aftermarket competition, and risk attitudes," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 274-285, March.
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  28. Francois, Patrick, 2000. "'Public service motivation' as an argument for government provision," Journal of Public Economics, Elsevier, vol. 78(3), pages 275-299, November.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Market competition and product quality
    by Economic Logician in Economic Logic on 2012-04-18 13:15:00

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