IDEAS home Printed from https://ideas.repec.org/a/bla/jindec/v71y2023i1p212-255.html
   My bibliography  Save this article

Multimarket Contact in Health Insurance: Evidence from Medicare Advantage

Author

Listed:
  • Haizhen Lin
  • Ian M. McCarthy

Abstract

Many industries consist of large firms that compete in multiple geographic markets. Such overlap, defined as multimarket contact (MMC), may facilitate tacit collusion and soften competition. We examine the effects of MMC on health insurance prices and quality using comprehensive data on the Medicare Advantage (MA) market from 2008 through 2015. Our identification strategy exploits two plausibly exogenous changes to MMC: (1) out‐of‐market mergers; and (2) policy‐driven changes in the benchmark rates of other markets. Our results consistently support the mutual forbearance hypothesis, where we find that prices are significantly higher and high‐quality plans less pervasive as MMC increases.

Suggested Citation

  • Haizhen Lin & Ian M. McCarthy, 2023. "Multimarket Contact in Health Insurance: Evidence from Medicare Advantage," Journal of Industrial Economics, Wiley Blackwell, vol. 71(1), pages 212-255, March.
    • Handle: RePEc:bla:jindec:v:71:y:2023:i:1:p:212-255
    DOI: 10.1111/joie.12318
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/joie.12318
    Download Restriction: no
    File URL: https://libkey.io/10.1111/joie.12318?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
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Waldfogel Joel & Wulf Julie, 2006. "Measuring the Effect of Multimarket Contact on Competition: Evidence from Mergers Following Radio Broadcast Ownership Deregulation," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-25, July.
    2. Rachel M. Friedberg, 2001. "The Impact of Mass Migration on the Israeli Labor Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(4), pages 1373-1408.
    3. Paulo Guimarães & Pedro Portugal, 2010. "A simple feasible procedure to fit models with high-dimensional fixed effects," Stata Journal, StataCorp LP, vol. 10(4), pages 628-649, December.
    4. Federico Ciliberto & Jonathan W. Williams, 2014. "Does multimarket contact facilitate tacit collusion? Inference on conduct parameters in the airline industry," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 764-791, December.
    5. Matthew S. Lewis & Kevin E. Pflum, 2017. "Hospital systems and bargaining power: evidence from out-of-market acquisitions," RAND Journal of Economics, RAND Corporation, vol. 48(3), pages 579-610, August.
    6. Matsushima, Hitoshi, 2001. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," Journal of Economic Theory, Elsevier, vol. 98(1), pages 158-178, May.
    7. Nicholas Bloom & Carol Propper & Stephan Seiler & John Van Reenen, 2015. "The Impact of Competition on Management Quality: Evidence from Public Hospitals," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(2), pages 457-489.
    8. Vilsa Curto & Liran Einav & Jonathan Levin & Jay Bhattacharya, 2021. "Can Health Insurance Competition Work? Evidence from Medicare Advantage," Journal of Political Economy, University of Chicago Press, vol. 129(2), pages 570-606.
    9. Karen Stockley & Thomas McGuire & Christopher Afendulis & Michael E. Chernew, 2014. "Premium Transparency in the Medicare Advantage Market: Implications for Premiums, Benefits, and Efficiency," NBER Working Papers 20208, National Bureau of Economic Research, Inc.
    10. Chintrakarn, Pandej & Millimet, Daniel L., 2006. "The environmental consequences of trade: Evidence from subnational trade flows," Journal of Environmental Economics and Management, Elsevier, vol. 52(1), pages 430-453, July.
    11. Holger C. Wolf, 2000. "Intranational Home Bias In Trade," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 555-563, November.
    12. David M. Cutler & Robert S. Huckman & Jonathan T. Kolstad, 2010. "Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 51-76, February.
    13. Spagnolo, Giancarlo, 1999. "On Interdependent Supergames: Multimarket Contact, Concavity, and Collusion," Journal of Economic Theory, Elsevier, vol. 89(1), pages 127-139, November.
    14. Duggan, Mark & Starc, Amanda & Vabson, Boris, 2016. "Who benefits when the government pays more? Pass-through in the Medicare Advantage program," Journal of Public Economics, Elsevier, vol. 141(C), pages 50-67.
    15. Aneel Karnani & Birger Wernerfelt, 1985. "Multiple point competition," Strategic Management Journal, Wiley Blackwell, vol. 6(1), pages 87-96, January.
    16. Jeffrey A. Frankel & Andrew K. Rose, 2005. "Is Trade Good or Bad for the Environment? Sorting Out the Causality," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 85-91, February.
    17. Leemore Dafny & David Dranove, 2008. "Do report cards tell consumers anything they don't already know? The case of Medicare HMOs," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 790-821, September.
    18. Town, Robert & Liu, Su, 2003. "The Welfare Impact of Medicare HMOs," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 719-736, Winter.
    19. David M. Cutler & Robert S. Huckman & Jonathan T. Kolstad, 2009. "Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery," NBER Working Papers 15214, National Bureau of Economic Research, Inc.
    20. Steven T. Berry & Joel Waldfogel, 2001. "Do Mergers Increase Product Variety? Evidence from Radio Broadcasting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 1009-1025.
    21. Matt Schmitt, 2018. "Multimarket Contact in the Hospital Industry," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 361-387, August.
    22. Andrew Sweeting, 2010. "The effects of mergers on product positioning: evidence from the music radio industry," RAND Journal of Economics, RAND Corporation, vol. 41(2), pages 372-397, June.
    23. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    24. repec:mpr:mprres:3849 is not listed on IDEAS
    25. Michael Darden & Ian M. McCarthy, 2015. "The Star Treatment: Estimating the Impact of Star Ratings on Medicare Advantage Enrollments," Journal of Human Resources, University of Wisconsin Press, vol. 50(4), pages 980-1008.
    26. Ying Fan, 2013. "Ownership Consolidation and Product Characteristics: A Study of the US Daily Newspaper Market," American Economic Review, American Economic Association, vol. 103(5), pages 1598-1628, August.
    27. Gaynor, Martin, 2006. "Is vertical integration anticompetitive?: Definitely maybe (but that's not final)," Journal of Health Economics, Elsevier, vol. 25(1), pages 175-180, January.
    28. Song, Zirui & Landrum, Mary Beth & Chernew, Michael E., 2013. "Competitive bidding in Medicare Advantage: Effect of benchmark changes on plan bids," Journal of Health Economics, Elsevier, vol. 32(6), pages 1301-1312.
    29. Nerea Fernández & Pedro L. Marín, 1998. "Market Power and Multimarket Contact: Some Evidence from the Spanish Hotel Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 301-315, September.
    30. Kobayashi, Hajime & Ohta, Katsunori, 2012. "Optimal collusion under imperfect monitoring in multimarket contact," Games and Economic Behavior, Elsevier, vol. 76(2), pages 636-647.
    31. Marika Cabral & Michael Geruso & Neale Mahoney, 2018. "Do Larger Health Insurance Subsidies Benefit Patients or Producers? Evidence from Medicare Advantage," American Economic Review, American Economic Association, vol. 108(8), pages 2048-2087, August.
    32. Jans, Ivette & Rosenbaum, David I., 1997. "Multimarket contact and pricing: Evidence from the U.S. cement industry," International Journal of Industrial Organization, Elsevier, vol. 15(3), pages 391-412, May.
    33. Molnar, Jozsef & Violi, Roberto & Zhou, Xiaolan, 2013. "Multimarket contact in Italian retail banking: Competition and welfare," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 368-381.
    34. McCarthy, Ian M., 2018. "Quality disclosure and the timing of insurers’ adjustments: Evidence from medicare advantage," Journal of Health Economics, Elsevier, vol. 61(C), pages 13-26.
    35. Feinberg Robert M., 2015. "Pricing of First-Run Movies in Small U.S. Metropolitan Areas: Multimarket Contact and Chain Effects," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(1), pages 285-297, January.
    36. William N. Evans & Ioannis N. Kessides, 1994. "Living by the "Golden Rule": Multimarket Contact in the U. S. Airline Industry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 341-366.
    37. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
    38. repec:bla:jindec:v:46:y:1998:i:3:p:301-15 is not listed on IDEAS
    39. Gaure, Simen, 2013. "OLS with multiple high dimensional category variables," Computational Statistics & Data Analysis, Elsevier, vol. 66(C), pages 8-18.
    40. Leemore Dafny & Kate Ho & Robin S. Lee, 2019. "The price effects of cross‐market mergers: theory and evidence from the hospital industry," RAND Journal of Economics, RAND Corporation, vol. 50(2), pages 286-325, June.
    Full references (including those not matched with items on IDEAS)

    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. 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.
    2. Arie, Guy & Markovich, Sarit & Varela, Mauricio, 2017. "On the competitive effects of multimarket contact," European Economic Review, Elsevier, vol. 100(C), pages 116-142.
    3. Ma, Wenliang & Wang, Qiang & Yang, Hangjun & Zhang, Yahua, 2020. "Is multimarket contact an antitrust concern? A case of China’s airline market," Transportation Research Part A: Policy and Practice, Elsevier, vol. 132(C), pages 515-526.
    4. Cruz-García, Paula & Fernández de Guevara, Juan & Maudos, Joaquín, 2021. "Bank competition and multimarket contact intensity," Journal of International Money and Finance, Elsevier, vol. 113(C).
    5. Balaguer, Jacint & Ripollés, Jordi, 2021. "Does multimarket contact affect prices in the retail fuel industry? First empirical evidence," Energy Economics, Elsevier, vol. 93(C).
    6. Saadet Kasman & Adnan Kasman, 2016. "Multimarket contact, market power and financial stability in the Turkish banking industry," Empirical Economics, Springer, vol. 50(2), pages 361-382, March.
    7. McCarthy, Ian M., 2018. "Quality disclosure and the timing of insurers’ adjustments: Evidence from medicare advantage," Journal of Health Economics, Elsevier, vol. 61(C), pages 13-26.
    8. Jules Yimga, 2023. "Multimarket Contact and Market Power Implications in the US Airline Industry," Networks and Spatial Economics, Springer, vol. 23(4), pages 985-1024, December.
    9. Ciliberto, Federico & Watkins, Eddie & Williams, Jonathan W., 2019. "Collusive pricing patterns in the US airline industry," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 136-157.
    10. Coccorese, Paolo & Pellecchia, Alfonso, 2013. "Multimarket contact, competition and pricing in banking," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 187-214.
    11. Isogai, Shigeki & Shen, Chaohai, 2023. "Multiproduct firm’s reputation and leniency program in multimarket collusion," Economic Modelling, Elsevier, vol. 125(C).
    12. Ciliberto, Federico & Williams, Jonathan, 2010. "Does Multimarket Contact Facilitate Tacit Collusion? Inference on Conjectural Parameters in the Airline Industry," MPRA Paper 24888, University Library of Munich, Germany.
    13. repec:spo:wpmain:info:hdl:2441/4bg68glinb8r8roh0akvprtu9u is not listed on IDEAS
    14. Gaurab Aryal & Dennis J. Campbell & Federico Ciliberto & Ekaterina A. Khmelnitskaya, 2023. "Common Subcontracting and Airline Prices," Papers 2301.05999, arXiv.org, revised Dec 2023.
    15. Iwan Bos & Ronald Peeters, 2023. "Price Competition in a Vertizontally Differentiated Duopoly," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(3), pages 219-239, May.
    16. Pankaj Ghemawat & Catherine Thomas, 2008. "Strategic Interaction Across Countries and Multinational Agglomeration: An Application to the Cement Industry," Management Science, INFORMS, vol. 54(12), pages 1980-1996, December.
    17. repec:hal:spmain:info:hdl:2441/4bg68glinb8r8roh0akvprtu9u is not listed on IDEAS
    18. Beomjoon Shim & Ahmed Khwaja, 2017. "The Collusive Effect of Multimarket Contact on Prices: Evidence from Retail Lumber Markets," 2017 Meeting Papers 593, Society for Economic Dynamics.
    19. repec:hal:wpspec:info:hdl:2441/4bg68glinb8r8roh0akvprtu9u is not listed on IDEAS
    20. 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.
    21. Michele Fioretti & Hongming Wang, 2019. "Subsidizing Inequality: Performance Pay and Risk Selection in Medicare," Working Papers hal-03393070, HAL.
    22. repec:spo:wpecon:info:hdl:2441/4bg68glinb8r8roh0akvprtu9u is not listed on IDEAS
    23. Chicu, Mark & Ziebarth, Nicolas L., 2013. "Multi-market contact and competition: evidence from the Depression-era portland cement industry," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 603-611.
    24. Federico Ciliberto & Jonathan W. Williams, 2014. "Does multimarket contact facilitate tacit collusion? Inference on conduct parameters in the airline industry," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 764-791, December.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

    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:jindec:v:71:y:2023:i:1:p:212-255. 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.blackwellpublishing.com/journal.asp?ref=0022-1821 .

    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.