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Welfare standards in hospital mergers

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  • Katalin Katona

    ()

  • Marcel Canoy

    ()

Abstract

There is a broad literature on the consequences of applying different welfare standards in merger control. Total welfare is usually defined as the sum of consumer and provider surplus, i.e., potential external effects are not considered. The general result is then that consumer welfare is a more restrictive standard than total welfare, which is advantageous in certain situations. This relationship between the two standards is not necessarily true when the merger has significant external effects. We model mergers on hospital markets and allow for not-profit-maximizing behavior of providers and mandatory health insurance. Mandatory health insurance detaches the financial and consumption side of health care markets, and the concept consumer in merger control becomes non-evident. Patients not visiting the merging hospitals still are affected by price changes through their insurance premiums. External financial effects emerge on not directly affected consumers. We show that applying a restricted interpretation of consumer (neglecting externality) in health care merger control can reverse the relation between the two standards; consumer welfare standard can be weaker than total welfare. Consequently, applying the wrong standard can lead to both clearing socially undesirable and to blocking socially desirable mergers. The possible negative consequences of applying a simple consumer welfare standard in merger control can be even stronger when hospitals maximize quality and put less weight on financial considerations. We also investigate the implications of these results for the practice of merger control. Copyright The Author(s) 2013

Suggested Citation

  • Katalin Katona & Marcel Canoy, 2013. "Welfare standards in hospital mergers," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 14(4), pages 573-586, August.
  • Handle: RePEc:spr:eujhec:v:14:y:2013:i:4:p:573-586
    DOI: 10.1007/s10198-012-0403-x
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    References listed on IDEAS

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    More about this item

    Keywords

    Merger control; Hospital merger; Welfare standard; Externality; I11; I18; L44;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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