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Nonprofit Hospital Mergers and the Exercise of Market Power

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  • Lynk, William J

Abstract

Government challenges to mergers within the hospital industry have become more frequent. Many of those mergers involve nonprofit organizations rather than the for-profit firms that are the norm in most other industries. This difference in ownership has made no apparent difference in the antitrust agencies' approach to proposed hospital mergers. In this article I test the proposition that nonprofit and for-profit hospitals price differently in response to the structure of the markets in which they compete. Based on a cross-sectional analysis of California hospitals, I find that estimated merger effects on hospital prices do vary by type of ownership. In response to either higher market share or to the joint combination of higher share and higher market concentration, private nonprofit hospital prices are statistically significantly lower than for-profit hospital prices, and on balance in this sample there is no evidence of any systematic price-increasing effect on private nonprofit hospitals. Copyright 1995 by the University of Chicago.

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  • Lynk, William J, 1995. "Nonprofit Hospital Mergers and the Exercise of Market Power," Journal of Law and Economics, University of Chicago Press, vol. 38(2), pages 437-461, October.
  • Handle: RePEc:ucp:jlawec:v:38:y:1995:i:2:p:437-61
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    File URL: http://dx.doi.org/10.1086/467338
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    1. Richard G. Frank & David S. Salkever, 1991. "The Supply of Charity Services by Nonprofit Hospitals: Motives and Market Structure," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 430-445, Autumn.
    2. Lynk, William J., 1995. "The creation of economic efficiencies in hospital mergers," Journal of Health Economics, Elsevier, vol. 14(5), pages 507-530, December.
    3. Hansmann, Henry, 1988. "Ownership of the Firm," Journal of Law, Economics, and Organization, Oxford University Press, vol. 4(2), pages 267-304, Fall.
    4. Ravenscraft, David J, 1983. "Structure-Profit Relationships at the Line of Business and Industry Level," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 22-31, February.
    5. Dranove, David & Shanley, Mark & White, William D, 1993. "Price and Concentration in Hospital Markets: The Switch from Patient-Driven to Payer-Driven Competition," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 179-204, April.
    6. Becker, Edmund R & Sloan, Frank A, 1985. "Hospital Ownership and Performance," Economic Inquiry, Western Economic Association International, vol. 23(1), pages 21-36, January.
    7. Hansmann, Henry, 1985. "The Organization of Insurance Companies: Mutual versus Stock," Journal of Law, Economics, and Organization, Oxford University Press, vol. 1(1), pages 125-153, Spring.
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