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Complementarity or substitutability in networks? Methodology and application to the hospital industry

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  • Philippe Choné
  • Lionel Wilner

    (CREST, ENSAE)

Abstract

We develop a network approach to study the transmission and propagation of firm-level shocks in industries with spatially differentiated agents and imperfect competition. Deriving comparative statics for oligopoly from the properties of Leontief matrices, we construct centrality indicators that reflect the geographic distribution of firms as well as their importance in the network. When longitudinal data are available, we show how to estimate the link between the firms' responses to the shocks and the centrality indicators, and to empirically assess the nature and strength of strategic interactions. The results in our application strongly suggest that the utilitiesprovided by hospitals to patients are strategic complements.

Suggested Citation

  • Philippe Choné & Lionel Wilner, 2015. "Complementarity or substitutability in networks? Methodology and application to the hospital industry," Working Papers 2015-07, Center for Research in Economics and Statistics.
  • Handle: RePEc:crs:wpaper:2015-07
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    More about this item

    Keywords

    Network interactions; propagation of shocks; centrality indicators; imperfect competition; hospital choice.;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • I1 - Health, Education, and Welfare - - Health
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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