IDEAS home Printed from https://ideas.repec.org/a/bla/jemstr/v23y2014i2p344-368.html
   My bibliography  Save this article

Vertical Integration and Exclusive Behavior of Insurers and Hospitals

Author

Listed:
  • Rudy Douven
  • Rein Halbersma
  • Katalin Katona
  • Victoria Shestalova

Abstract

We examine vertical integration and exclusive behavior in health care markets in which insurers and hospitals bilaterally bargain over contracts. We employ a bargaining model of two hospitals and two health insurers competing on premiums. We show that asymmetric equilibria exist in which one insurer contracts one hospital whereas the other insurer contracts both hospitals, even if all players are equally efficient in their production. Asymmetric equilibria arise if hospitals are sufficiently differentiated. In these cases, total industry profits increase and consumer welfare decreases in comparison to the case in which both insurers have contracts with both hospitals. Vertical integration makes these equilibria possible for a wider range of parameters.

Suggested Citation

  • Rudy Douven & Rein Halbersma & Katalin Katona & Victoria Shestalova, 2014. "Vertical Integration and Exclusive Behavior of Insurers and Hospitals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(2), pages 344-368, June.
    • Handle: RePEc:bla:jemstr:v:23:y:2014:i:2:p:344-368
    DOI: 10.1111/jems.12056
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jems.12056
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jems.12056?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Strombom, Bruce A. & Buchmueller, Thomas C. & Feldstein, Paul J., 2002. "Switching costs, price sensitivity and health plan choice," Journal of Health Economics, Elsevier, vol. 21(1), pages 89-116, January.
    2. Gaynor, Martin & Vogt, William B., 2000. "Antitrust and competition in health care markets," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 27, pages 1405-1487, Elsevier.
    3. Michiel Bijlsma & Arno Meijer & Victoria Shestalova, 2008. "Vertical relationships between health insurers and healthcare providers," CPB Document 167, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Bijlsma, M. & Boone, J. & Zwart, Gijsbert, 2009. "Selective Contracting and Foreclosure in Health Care Markets," Other publications TiSEM fee69eb7-1661-4ec2-8aae-f, Tilburg University, School of Economics and Management.
    5. Rudy Douven & Marco Ligthart & H. Lieverdink & I. Vermeulen, 2007. "Measuring annual price elasticities in Dutch health insurance; a new method," CPB Discussion Paper 90, CPB Netherlands Bureau for Economic Policy Analysis.
    6. Katherine Ho, 2006. "The welfare effects of restricted hospital choice in the US medical care market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1039-1079.
    7. Ciliberto, Federico & Dranove, David, 2006. "The effect of physician-hospital affiliations on hospital prices in California," Journal of Health Economics, Elsevier, vol. 25(1), pages 29-38, January.
    8. Ching‐To Albert Ma, 1997. "Option Contracts and Vertical Foreclosure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 725-753, December.
    9. A. J. Culyer & J. P. Newhouse (ed.), 2000. "Handbook of Health Economics," Handbook of Health Economics, Elsevier, edition 1, volume 1, number 1.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sorek Gilad, 2016. "Competition and Product Choice in Option Demand Markets," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 785-805, April.
    2. Gilad Sorek, 2015. "Health Insurance and Competition in Health Care Markets," Auburn Economics Working Paper Series auwp2015-03, Department of Economics, Auburn University.
    3. Edmond Baranes & David Bardey, 2015. "Competition between health maintenance organizations and nonintegrated health insurance companies in health insurance markets," Health Economics Review, Springer, vol. 5(1), pages 1-9, December.
    4. Sorek Gilad & Randolph Beard T., 2018. "Public Health Insurance with Monopolistically Competitive Providers and Optional Spot Sales," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 18(1), pages 1-10, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gaynor, Martin & Town, Robert J., 2011. "Competition in Health Care Markets," Handbook of Health Economics, in: Mark V. Pauly & Thomas G. Mcguire & Pedro P. Barros (ed.), Handbook of Health Economics, volume 2, chapter 0, pages 499-637, Elsevier.
    2. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    3. David Bardey & Giancarlo Buitrago, 2015. "Integración vertical en el sector de la salud colombiano," Documentos CEDE 14069, Universidad de los Andes, Facultad de Economía, CEDE.
    4. Martin Gaynor, "undated". "What Do We Know About Competition and Quality in Health Care Markets?," GSIA Working Papers 2006-E62, Carnegie Mellon University, Tepper School of Business.
    5. Tomas J. Philipson & Richard A. Posner, 2009. "Antitrust in the Not-for-Profit Sector," Journal of Law and Economics, University of Chicago Press, vol. 52(1), pages 1-18, February.
    6. Jean Marie Abraham & Martin Gaynor & William B. Vogt, 2007. "Entry And Competition In Local Hospital Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 265-288, June.
    7. Kate Ho & Ariel Pakes, 2014. "Hospital Choices, Hospital Prices, and Financial Incentives to Physicians," American Economic Review, American Economic Association, vol. 104(12), pages 3841-3884, December.
    8. Anna-Lena Trescher & Stefan Listl & Onno Galien & Frank Gabel & Olivier Kalmus, 2020. "Once bitten, twice shy? Lessons learned from an experiment to liberalize price regulations for dental care," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(3), pages 425-436, April.
    9. Gaynor, Martin & Vogt, William B, 2003. "Competition among Hospitals," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 764-785, Winter.
    10. R. Halbersma & M. Mikkers & E. Motchenkova & I. Seinen, 2011. "Market structure and hospital–insurer bargaining in the Netherlands," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 12(6), pages 589-603, December.
    11. Baranes, E. & Bardey, D., 2004. "Competition in Health Care Markets and Vertical Restraints," Cahiers du CREDEN (CREDEN Working Papers) 04.05.45, CREDEN (Centre de Recherche en Economie et Droit de l'Energie), Faculty of Economics, University of Montpellier 1.
    12. Katherine Ho, 2009. "Barriers to Entry of a Vertically Integrated Health Insurer: An Analysis of Welfare and Entry Costs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 487-545, June.
    13. Michiel Bijlsma & Viktoria Kocsis & Victoria Shestalova & Gijsbert Zwart, 2008. "Vertical foreclosure: a policy framework," CPB Document 157, CPB Netherlands Bureau for Economic Policy Analysis.
    14. Karolin Becker & Peter Zweifel, 2008. "Age and Choice in Health Insurance," The Patient: Patient-Centered Outcomes Research, Springer;International Academy of Health Preference Research, vol. 1(1), pages 27-40, January.
    15. Pilny, Adam & Wübker, Ansgar & Ziebarth, Nicolas R., 2017. "Introducing risk adjustment and free health plan choice in employer-based health insurance: Evidence from Germany," Journal of Health Economics, Elsevier, vol. 56(C), pages 330-351.
    16. H. Frech & Christopher Whaley & Benjamin Handel & Liora Bowers & Carol Simon & Richard Scheffler, 2015. "Market Power, Transactions Costs, and the Entry of Accountable Care Organizations in Health Care," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(2), pages 167-193, September.
    17. Bardey David & Bourgeon Jean-Marc, 2011. "Health Care Network Formation and Policyholders' Welfare," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(2), pages 1-20, January.
    18. Dunn, Abe, 2010. "The value of coverage in the medicare advantage insurance market," Journal of Health Economics, Elsevier, vol. 29(6), pages 839-855, December.
    19. Jonas Pendzialek & Dusan Simic & Stephanie Stock, 2016. "Differences in price elasticities of demand for health insurance: a systematic review," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(1), pages 5-21, January.
    20. Rudy Douven & Katalin Katona & Frederik Schut & Victoria Shestalova, 2017. "Switching gains and health plan price elasticities: 20 years of managed competition reforms in The Netherlands," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(8), pages 1047-1064, November.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jemstr:v:23:y:2014:i:2:p:344-368. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.kellogg.northwestern.edu/research/journals/JEMS/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.