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Assessing Competition in Hospital Care Markets: The Importance of Accounting for Quality Differentiation

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  • Tay, Abigail

Abstract

Quality differentiation is especially important in the hospital industry, where the choices of Medicare patients are unaffected by prices. Unlike previous studies that use geographic market concentration to estimate hospital competitiveness, this article emphasizes the importance of quality differentiation in this spatially differentiated market. I estimate a random-coefficients discrete-choice model that predicts patient flow to different hospitals and find that demand responses to both distance and quality are substantial. The estimates suggest that patients do not substitute toward alternative hospitals in proportion to current market shares, implying that geographic market concentration is an inappropriate measure of hospital competitiveness. Copyright 2003 by the RAND Corporation.

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  • Tay, Abigail, 2003. " Assessing Competition in Hospital Care Markets: The Importance of Accounting for Quality Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 786-814, Winter.
  • Handle: RePEc:rje:randje:v:34:y:2003:i:4:p:786-814
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