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Quality and welfare in a mixed duopoly with regulated prices: The case of a public and a private hospital

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  • Herr, Annika

Abstract

Hospital markets are often characterised by price regulation and the existence of different ownership types. Using a Hotelling framework, this paper analyses the effect of heterogeneous objectives of the hospitals on quality differentiation, profits, and overall welfare in a price regulated duopoly with exogenous symmetric locations. In contrast to other studies on mixed duopolies, this paper shows that in this framework privatisation of the public hospital may increase overall welfare. This holds if the public hospital is similar to the private hospital or less efficient and competition is low. The main driving force is the single regulated price which induces under-(over-)provision of quality of the more (less) efficient hospital compared to the first-best. However, if the public hospital is sufficiently more efficient and competition is fierce, a mixed duopoly outperforms both a private and a public duopoly due to an equilibrium price below (above) the price of the private (public) duopoly. This medium price discourages overprovision of quality of the less efficient hospital and - together with the non-profit objective - encourages an increase in quality of the more efficient public hospital. --

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Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 07.

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Date of creation: 2010
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Handle: RePEc:zbw:dicedp:07

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Keywords: mixed oligopoly; price regulation; quality; hospital competition;

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  1. Brekke, Kurt R. & Nuscheler, Robert & Straume, Odd Rune, 2002. "Quality and location choices under price regulation," Discussion Papers, Research Unit: Market Processes and Governance, Social Science Research Center Berlin (WZB) FS IV 02-28, Social Science Research Center Berlin (WZB).
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  7. Bardey, David & Canta, Chiara & Lozachmeur, Jean-Marie, 2010. "Health Care Providers Payments Regulation when Horizontal and Vertical Differentiation Matter," TSE Working Papers, Toulouse School of Economics (TSE) 10-164, Toulouse School of Economics (TSE).
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  13. Toshihiro Matsumura & Noriaki Matsushima, 2004. "Endogenous Cost Differentials between Public and Private Enterprises: A Mixed Duopoly Approach," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 71(284), pages 671-688, November.
  14. Annika Herr, 2008. "Cost and technical efficiency of German hospitals: does ownership matter?," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 17(9), pages 1057-1071.
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Cited by:
  1. Katz, Michael L., 2013. "Provider competition and healthcare quality: More bang for the buck?," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 31(5), pages 612-625.
  2. Ellert, Alexander & Urmann, Oliver, 2012. "Competition in the market for supplementary health insurance: The case of competing nonprofit sickness funds," Working Papers on Risk and Insurance, University of Hamburg, Institute for Risk and Insurance 25 [rev.], University of Hamburg, Institute for Risk and Insurance.
  3. Stühmeier Torben & Wenzel Tobias, 2012. "Regulating Advertising in the Presence of Public Service Broadcasting," Review of Network Economics, De Gruyter, De Gruyter, vol. 11(2), pages 1-23, June.
  4. Gu, Yiquan & Wenzel, Tobias, 2012. "Transparency, entry, and productivity," Economics Letters, Elsevier, Elsevier, vol. 115(1), pages 7-10.
  5. Rune Stenbacka & Mihkel Tombak, 2014. "Optimal Co-Payment Policy In Health Care: Competition, Ownership Structure And Quality Provision," Working Papers 140004, Canadian Centre for Health Economics.
  6. Haucap, Justus & Herr, Annika & Frank, Björn, 2011. "In vino veritas: Theory and evidence on social drinking," DICE Discussion Papers, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) 37, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  7. Seungchul Lee & Robert Rosenman, 2013. "Reimbursement and Investment: Prospective Payment and For-Profit Hospitals’ Market Share," Journal of Industry, Competition and Trade, Springer, Springer, vol. 13(4), pages 503-518, December.
  8. Christin, Clémence, 2011. "Entry deterrence through cooperative R&D over-investment," DICE Discussion Papers, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) 38, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  9. Rosella Levaggi & Marcello Montefiori, 2013. "Patient selection in a mixed oligopoly market for health care: the role of the soft budget constraint," International Review of Economics, Springer, Springer, vol. 60(1), pages 49-70, March.

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