Competition and Crowding-Out among Public, Non-Profit and For-Profit Organizations: Evidence from Outpatient Substance Abuse Treatment

U.S. markets for outpatient substance abuse treatment (OSAT) include clinics that are private for-profit, private non-profit, and public (i.e., government-run). We study the market structure of OSAT using recently-developed methods from the empirical industrial organization literature on equilibrium market structure in differentiated product markets. These methods allow us to describe OSAT clinics as heterogeneous in their objectives, their responses to exogenous market characteristics, and their responses to one another. We find that the presence of a public clinic in a market reduces the probability that a private clinic will also participate in the market, which is consistent with crowding-out between public and private provision of OSAT. Crowding out appears to be more prevalent in markets with larger white populations.