Elzinga/Hogarty inflow/outflow analysis is a mainstay of geographic market definition in antitrust analysis. For example, U.S. antitrust agencies lost several hospital merger challenges when evidence showed that a nontrivial fraction of local patients traveled outside the local community for care. We show that the existence of traveling consumers may not limit seller market power with respect to non-traveling consumers--a phenomenon we label the silent majority fallacy. We estimate a random coefficients logit model of hospital demand and use the estimates to predict the increase in price that various mergers would generate. Two distinct methods of predicting the price increase are implemented and both indicate that even in suburban areas with high outflows of consumers, some hospital mergers could lead to significant price increases.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
8216.
Length: Date of creation: Apr 2001 Date of revision: Handle: RePEc:nbr:nberwo:8216
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