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Competition and quality in health care markets: A differential-game approach

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  • Brekke, Kurt R.
  • Cellini, Roberto
  • Siciliani, Luigi
  • Straume, Odd Rune

Abstract

We investigate the effect of competition on quality in health care markets with regulated prices taking a differential game approach, in which quality is a stock variable. Using a Hotelling framework, we derive the open-loop solution (health care providers set the optimal investment plan at the initial period) and the feedback closed-loop solution (providers move investments in response to the dynamics of the states). Under the closed-loop solution competition is more intense in the sense that providers observe quality in each period and base their investment on this information. If the marginal provision cost is constant, the open-loop and closed-loop solutions coincide, and the results are similar to the ones obtained by static models. If the marginal provision cost is increasing, investment and quality are lower in the closed-loop solution (when competition is more intense). In this case, static models tend to exaggerate the positive effect of competition on quality.

Suggested Citation

  • Brekke, Kurt R. & Cellini, Roberto & Siciliani, Luigi & Straume, Odd Rune, 2010. "Competition and quality in health care markets: A differential-game approach," Journal of Health Economics, Elsevier, vol. 29(4), pages 508-523, July.
  • Handle: RePEc:eee:jhecon:v:29:y:2010:i:4:p:508-523
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    Citations

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    Cited by:

    1. Roberto Cellini & Luigi Siciliani & Odd Rune Straume, "undated". "A dynamic model of quality competition with endogenous prices," NIPE Working Papers 8/2015, NIPE - Universidade do Minho.
    2. Changying Li & Jianhu Zhang, 2013. "Dynamic Games of R&D Competition in a Differentiated Duopoly," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 169(4), pages 660-679, December.
    3. Hiroshi Aiura, 2013. "Inter-regional competition and quality in hospital care," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(3), pages 515-526, June.
    4. Domenico Lisi & Luigi Siciliani & Odd Rune Straume, 2018. "Hospital Competition under Pay-for-Performance: Quality, Mortality and Readmissions," NIPE Working Papers 06/2018, NIPE - Universidade do Minho.
    5. Bisceglia, Michele & Cellini, Roberto & Grilli, Luca, 2017. "Regional regulators in healthcare service under quality competition: A game theoretical model," MPRA Paper 80507, University Library of Munich, Germany.
    6. Guccio, Calogero & Lisi, Domenico & Pignataro, Giacomo, 2014. "Readmission and Hospital Quality under Prospective Payment System," MPRA Paper 56490, University Library of Munich, Germany.
    7. Alexander Karpov, 2016. "Health care inequality, patient mobility and welfare," Economics Bulletin, AccessEcon, vol. 36(2), pages 1000-1009.
    8. Bardey, David & Canta, Chiara & Lozachmeur, Jean-Marie, 2012. "The regulation of health care providers’ payments when horizontal and vertical differentiation matter," Journal of Health Economics, Elsevier, vol. 31(5), pages 691-704.
    9. Roberto Cellini & Fabio Lamantia, 2015. "Quality competition in markets with regulated prices and minimum quality standards," Journal of Evolutionary Economics, Springer, vol. 25(2), pages 345-370, April.
    10. Stroka-Wetsch, Magdalena A. & Talmann, Anna & Linder, Roland, 2016. "Does competition in the out-patient sector improve quality of medical care? Evidence from administrative data," Ruhr Economic Papers 638, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    11. Bardey David & Cremer Helmuth & Lozachmeur Jean-Marie, 2012. "Doctors' Remuneration Schemes and Hospital Competition in a Two-Sided Market," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-31, November.
    12. 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 25 [rev.], University of Hamburg, Institute for Risk and Insurance.
    13. Bisceglia, Michele & Cellini, Roberto & Grilli, Luca, 2017. "Quality competition in healthcare services with regional regulators: A differential game approach," MPRA Paper 81758, University Library of Munich, Germany.

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