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Hospital Mergers: A Spatial Competition Approach

  • Brekke, Kurt R.

    ()

    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Siciliani, Luigi

    ()

    (University of York)

  • Straume, Odd Rune

    ()

    (University of Minho and University of Bergen)

Using a spatial competition framework with three ex ante identical hospitals, we study the effects of a hospital merger on quality, price and welfare. The merging hospitals always reduce quality, but the non-merging hospital responds by reducing quality if prices are fixed and increasing quality if not. The merging hospitals increase prices if demand responsiveness to quality is sufficiently low, whereas the non-merging hospital always increases its price. If prices are endogenous, a merger leads to higher average prices and quality in the market. A merger is harmful for total patient utility but can improve social welfare under price competition.

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Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 8/2013.

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Length: 38 pages
Date of creation: 04 Apr 2013
Date of revision:
Handle: RePEc:hhs:nhheco:2013_008
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NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway

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Web page: http://www.nhh.no/sam/
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  1. Burns, Lawton R. & Wholey, Douglas R., 1992. "The impact of physician characteristics in conditional choice models for hospital care," Journal of Health Economics, Elsevier, vol. 11(1), pages 43-62, May.
  2. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2009. "Hospital Competition and Quality with Regulated Prices," CESifo Working Paper Series 2635, CESifo Group Munich.
  3. Martin Gaynor & Mauro Laudicella & Carol Propper, 2011. "Can Governments Do It Better? Merger Mania and Hospital Outcomes in the English NHS," NBER Working Papers 17608, National Bureau of Economic Research, Inc.
  4. Martin Gaynor & Robert J Town, 2012. "Competition in Health Care Markets," The Centre for Market and Public Organisation 12/282, Department of Economics, University of Bristol, UK.
  5. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
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  7. Peter Sivey, 2010. "The effect of waiting time and distance on hospital choice for English cataract patients," Health, Econometrics and Data Group (HEDG) Working Papers 10/09, HEDG, c/o Department of Economics, University of York.
  8. Martin Gaynor & William Vogt, 2002. "Competition Among Hospitals," GSIA Working Papers 2003-E20, Carnegie Mellon University, Tepper School of Business.
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  16. Dranove, David & Lindrooth, Richard, 2003. "Hospital consolidation and costs: another look at the evidence," Journal of Health Economics, Elsevier, vol. 22(6), pages 983-997, November.
  17. Brekke, Kurt Richard & Siciliani, Luigi & Straume, Odd Rune, 2009. "Price and quality in spatial competition," CEPR Discussion Papers 7422, C.E.P.R. Discussion Papers.
  18. Robert Town & Douglas Wholey & Roger Feldman & Lawton R. Burns, 2006. "The Welfare Consequences of Hospital Mergers," NBER Working Papers 12244, National Bureau of Economic Research, Inc.
  19. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 577-615.
  20. Stephen W. Salant & Sheldon Switzer & Robert J. Reynolds, 1983. "Losses From Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 98(2), pages 185-199.
  21. Walter Beckert & Mette Christensen & Kate Collyer, 2012. "Choice of NHS‐funded Hospital Services in England," Economic Journal, Royal Economic Society, vol. 122(560), pages 400-417, 05.
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