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Hospital Mergers: A Spatial Competition Approach

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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 and University of Bergen)

Abstract

Using a spatial competition framework with three ex ante identical hospitals, we study the effects of a hospital merger on quality, price and welfare. The merging hospitals always reduce quality, but the non-merging hospital responds by reducing quality if prices are fixed and increasing quality if not. The merging hospitals increase prices if demand responsiveness to quality is sufficiently low, whereas the non-merging hospital always increases its price. If prices are endogenous, a merger leads to higher average prices and quality in the market. A merger is harmful for total patient utility but can improve social welfare under price competition.

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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 8/2013.

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Length: 38 pages
Date of creation: 04 Apr 2013
Date of revision:
Handle: RePEc:hhs:nhheco:2013_008

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Web page: http://www.nhh.no/sam/
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Keywords: Hospital mergers; Spatial Competition; Antitrust.;

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References

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  1. Martin Gaynor & Carol Propper & Stephan Seiler, 2012. "Free to Choose? Reform and Demand Response in the English National Health Service," NBER Working Papers 18574, National Bureau of Economic Research, Inc.
  2. Gaynor, Martin & Laudicella, Mauro & Propper, Carol, 2012. "Can governments do it better? Merger mania and hospital outcomes in the English NHS," Journal of Health Economics, Elsevier, vol. 31(3), pages 528-543.
  3. Zack Cooper & Steve Gibbons & Simon Jones & Alistair McGuire, 2010. "Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms," SERC Discussion Papers 0041, Spatial Economics Research Centre, LSE.
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  7. Dranove, David & Lindrooth, Richard, 2003. "Hospital consolidation and costs: another look at the evidence," Journal of Health Economics, Elsevier, vol. 22(6), pages 983-997, November.
  8. repec:ecj:econjl:v:122:y:2012:i::p:400-417 is not listed on IDEAS
  9. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
  10. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2011. "Hospital Competition and Quality with Regulated Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113, pages 444-469, 06.
  11. Walter Beckert & Mette Christensen & Kate Collyer, 2012. "Choice of NHS‐funded Hospital Services in England," Economic Journal, Royal Economic Society, vol. 122(560), pages 400-417, 05.
  12. Nuscheler, Robert, 2002. "Physician reimbursement, time-consistency and the quality of care," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-16, Social Science Research Center Berlin (WZB).
  13. Ching-to Ma & James Burgess, 1993. "Quality competition, welfare, and regulation," Journal of Economics, Springer, vol. 58(2), pages 153-173, June.
  14. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2010. "Price and quality in spatial competition," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 471-480, November.
  15. Burns, Lawton R. & Wholey, Douglas R., 1992. "The impact of physician characteristics in conditional choice models for hospital care," Journal of Health Economics, Elsevier, vol. 11(1), pages 43-62, May.
  16. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
  17. Ho, Vivian & Hamilton, Barton H., 2000. "Hospital mergers and acquisitions: does market consolidation harm patients?," Journal of Health Economics, Elsevier, vol. 19(5), pages 767-791, September.
  18. Robert Town & Douglas Wholey & Roger Feldman & Lawton R. Burns, 2006. "The Welfare Consequences of Hospital Mergers," NBER Working Papers 12244, National Bureau of Economic Research, Inc.
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