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Hospital Mergers: A Spatial Competition Approach

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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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File URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2013/NIPE_WP_04_2013.pdf
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Bibliographic Info

Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 04/2013.

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Date of creation: 2013
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Handle: RePEc:nip:nipewp:04/2013

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Keywords: Hospital mergers; Spatial Competition; Antitrust;

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  1. Propper, C & Laudicella, M & Gaynor, M, 2012. "Can governments do it better? Merger mania and hospital outcomes in the English NHS," Working Papers 9182, Imperial College, London, Imperial College Business School.
  2. Martin Gaynor & William Vogt, 2002. "Competition Among Hospitals," GSIA Working Papers 2003-E20, Carnegie Mellon University, Tepper School of Business.
  3. Zack Cooper & Stephen Gibbons & Simon Jones & Alistair McGuire, 2010. "Does hospital competition save lives?: evidence from the English NHS patient choice reforms," LSE Research Online Documents on Economics 28584, London School of Economics and Political Science, LSE Library.
  4. 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.
  5. 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.
  6. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2008. "Hospital competition and quality with regulated prices," NIPE Working Papers 06/2008, NIPE - Universidade do Minho.
  7. 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.
  8. 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.
  9. Peter Sivey, 2010. "The effect of waiting time and distance on hospital choice for English cataract patients," Health, Econometrics and Data Group (HEDG) Working Papers 10/09, HEDG, c/o Department of Economics, University of York.
  10. Ching-to Ma & James Burgess, 1993. "Quality competition, welfare, and regulation," Journal of Economics, Springer, vol. 58(2), pages 153-173, June.
  11. 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).
  12. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 577-615, May.
  13. Gaynor, Martin & Propper, Carol & Seiler, Stephan, 2012. "Free to Choose? Reform and Demand Response in the English National Health Service," CEPR Discussion Papers 9250, C.E.P.R. Discussion Papers.
  14. 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.
  15. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
  16. 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.
  17. repec:ecj:econjl:v:122:y:2012:i::p:400-417 is not listed on IDEAS
  18. 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.
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