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Competition among Hospitals

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  • Martin Gaynor
  • William B Vogt

Abstract

We examine competition in the hospital industry, in particular the effect of ownership type (for-profit, no-for-profit, government). We estimate a structural model of demand and pricing in the hospital industry in California, then use the estimates to simulate the effect of a merger. California hospitals in 1995 face an average price elasticity of demand of -4.85. Not-for-profit hospitals face less elastic demand and act as if they have lower marginal costs. Their prices are lower than for-profits, but markups are higher. We simulate the effects of the 1997 merger of two hospital chains. In San Luis Obispo County, where the merger creates a near monopoly, prices rise by up to 53%, and the predicted price increase would not be substantially smaller were the chains not-for-profits.

Suggested Citation

  • Martin Gaynor & William B Vogt, 2003. "Competition among Hospitals," The Centre for Market and Public Organisation 03/087, The Centre for Market and Public Organisation, University of Bristol, UK.
  • Handle: RePEc:bri:cmpowp:03/087
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    File URL: http://www.bris.ac.uk/Depts/CMPO/workingpapers/wp87.pdf
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    References listed on IDEAS

    as
    1. Michael G. Vita & Seth Sacher, 2001. "The Competitive Effects of Not‐for‐Profit Hospital Mergers: A Case Study," Journal of Industrial Economics, Wiley Blackwell, vol. 49(1), pages 63-84, March.
    2. Gregory Werden & Luke Froeb & Timothy Tardiff, 1996. "The Use of the Logit Model in Applied Industrial Organization," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 3(1), pages 83-105.
    3. Joris Pinkse & Margaret E. Slade & Craig Brett, 2002. "Spatial Price Competition: A Semiparametric Approach," Econometrica, Econometric Society, vol. 70(3), pages 1111-1153, May.
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    More about this item

    Keywords

    analysis of health care markets;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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