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Hospital competition when patients learn through experience

Author

Listed:
  • Luís Sá

    (NIPE/Center for Research in Economics and Management, University of Minho, Portugal)

  • Odd Rune Straume

    (NIPE/Center for Research in Economics and Management, University of Minho, Portugal; and Department of Economics, University of Bergen, Norway)

Abstract

We study competing hospitals' incentives for quality provision in a dynamic setting where healthcare is an experience good. In our model, the utility a patient derives from choosing a particular provider depends on a subjective component specifi c to the match between the patient and the provider, which can only be learned through experience. We find that the experience-good nature of healthcare can either reinforce or dampen the demand responsiveness to quality and the hospitals' incentives for quality provision, depending on two key factors: (i) the shape of the distribution of match-specific utilities, and (ii) the cost relationship between quality provision and treatment volume. Our analysis helps identify and understand the conditions required for the market-based provision of healthcare to deliver improved quality.

Suggested Citation

  • Luís Sá & Odd Rune Straume, 2022. "Hospital competition when patients learn through experience," NIPE Working Papers 12/2022, NIPE - Universidade do Minho.
    • Handle: RePEc:nip:nipewp:12/2022
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    File URL: http://repositorium.sdum.uminho.pt/handle/1822/81720
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    More about this item

    Keywords

    Hospital competition; experience goods; forward-looking consumers; expectations; quality.;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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