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ENTRY AND COMPETITION IN LOCAL HOSPITAL MARKETS -super-

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  • JEAN MARIE ABRAHAM
  • MARTIN GAYNOR
  • WILLIAM B. VOGT

Abstract

We extend the entry model developed by Bresnahan and Reiss to make use of quantity information, and apply it to data on the U.S. hospital industry. The Bresnahan and Reiss model infers changes in the toughness of competition from entry threshold ratios. Entry threshold ratios, however, identify the product of changes in the toughness of competition and changes in fixed costs. By using quantity data, we are able to identify separately changes in the toughness of competition from changes in fixed costs. This model is generally applicable to industries where there are good data on market structure and quantity, but not on prices, as for example in the quinquennial U.S. Economic Census. In the hospital markets we examine, entry leads to a quick convergence to competitive conduct. Entry reduces variable profits and increases quantity. Most of the effects of entry come from having a second and a third firm enter the market. Copyright 2007 Blackwell Publishing Ltd..

Suggested Citation

  • Jean Marie Abraham & Martin Gaynor & William B. Vogt, 2007. "ENTRY AND COMPETITION IN LOCAL HOSPITAL MARKETS -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 55(2), pages 265-288, June.
  • Handle: RePEc:bla:jindec:v:55:y:2007:i:2:p:265-288
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    References listed on IDEAS

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    1. 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.
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    Cited by:

    1. Gaynor, Martin & Town, Robert J., 2011. "Competition in Health Care Markets," Handbook of Health Economics, Elsevier.
    2. Majumdar Sumit K., 2015. "Competitor entry impact on jobs and wages in incumbent firms: retrospective evidence from a natural experiment," Business and Politics, De Gruyter, vol. 17(2), pages 291-326, August.
    3. Gächter, Martin & Schwazer, Peter & Theurl, Engelbert & Winner, Hannes, 2012. "Physician density in a two-tiered health care system," Health Policy, Elsevier, vol. 106(3), pages 257-268.
    4. Chou, Shin-Yi & Deily, Mary E. & Li, Suhui & Lu, Yi, 2014. "Competition and the impact of online hospital report cards," Journal of Health Economics, Elsevier, vol. 34(C), pages 42-58.
    5. Peran van Reeven & Enrico Pennings, 2016. "On the relation between multimarket contact and service quality: Mutual forbearance or network coordination?," Strategic Management Journal, Wiley Blackwell, vol. 37(10), pages 2121-2134, October.
    6. Martin G�chter & Peter Schwazer & Engelbert Theurl, 2011. "Entry and Exit of Physicians in a two-tiered public/private Health Care System," Working Papers 2011-05, Faculty of Economics and Statistics, University of Innsbruck.
    7. Balmer, Roberto, 2013. "Entry and Competition in Local Newspaper Retail Markets - When two are enough," MPRA Paper 54079, University Library of Munich, Germany.
    8. Ian M. McCarthy & Michael Darden, 2015. "Quality Ratings and Premiums in the Medicare Advantage Market," Emory Economics 1501, Department of Economics, Emory University (Atlanta).
    9. Gayle, Philip G. & Harrison, Teresa D. & Thornton, Jeremy, 2017. "Entry, donor market size, and competitive conduct among nonprofit firms," International Journal of Industrial Organization, Elsevier, vol. 50(C), pages 294-318.

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