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Entry decisions and asymmetric competition between non-profit and for-profit homes in the long-term care market

Author

Listed:
  • Iris Grant
  • Iris Kesternich
  • Johannes Van Biesebroeck

Abstract

Mostly due to population aging, the demand for long-term care (LTC) services is growing strongly. Historically, non-profit nursing homes dominated the German LTC market, but the recent entry wave was tilted towards for-profit competitors. Using a rich administrative dataset on all LTC facilities in Germany, we examine strategic interaction between these two ownership types in a static entry model. The estimates of competitive effects imply that non-profit and for-profit homes are substitutes, but competition is much stronger within-type, suggesting that they provide differentiated products. For-profit homes in particular act as if they operate in a different market segment, but over time their entry behavior has converged to that of the more established non-profits. Counterfactual simulations of proposed changes in government policy suggest a large impact on the fraction of markets that remain unserved or only served by a single type.

Suggested Citation

  • Iris Grant & Iris Kesternich & Johannes Van Biesebroeck, 2020. "Entry decisions and asymmetric competition between non-profit and for-profit homes in the long-term care market," Working Papers of Department of Economics, Leuven 652689, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    • Handle: RePEc:ete:ceswps:652689
    Note: paper number DPS 20.03
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    2. Martin B. Hackmann & Jörg Heining & Roman Klimke & Maria Polyakova & Holger Seibert, 2025. "Health Insurance as Economic Stimulus? Evidence from Long-Term Care Jobs," NBER Working Papers 33429, National Bureau of Economic Research, Inc.
    3. Marc Jegers & Caroline Buts & Stijn Van Puyvelde, 2024. "Welfare effects of variable and fixed cost subsidies in profit, non‐profit and mixed markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(6), pages 4138-4156, September.
    4. Martin Hackmann & Joerg Heining & Roman Klimke & Maria Polyakova & Holger Seibert, 2021. "General Equilibrium Effects of Insurance Expansions: Evidence from Long-Term Care Labor Markets," Upjohn Working Papers 21-357, W.E. Upjohn Institute for Employment Research.
    5. Martin Hackmann & Jörg Heining & Roman Klimke & Maria Polyakova & Holger Seibert & Maria A. Polyakova & Roman Klimke, 2025. "Health Insurance as Economic Stimulus? Evidence from Long-Term Care Jobs," CESifo Working Paper Series 11665, CESifo.
    6. Kesternich, Iris & Romahn, André & Van Biesebroeck, Johannes & van Damme, Marjolein, 2025. "Cash or care? Insights from the German long-term care system," hche Research Papers 31, University of Hamburg, Hamburg Center for Health Economics (hche).

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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