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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
Contact details of provider: Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 959 277
Fax: 5595 9100
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  1. Zack Cooper & Steve Gibbons & Simon Jones & Alistair McGuire, 2010. "Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms," SERC Discussion Papers 0041, Spatial Economics Research Centre, LSE.
  2. Propper, C & Laudicella, M & Gaynor, M, 2012. "Can governments do it better? Merger mania and hospital outcomes in the English NHS," Working Papers 9182, Imperial College, London, Imperial College Business School.
  3. Peter Sivey, 2010. "The Effect of Waiting Time and Distance on Hospital Choice for English Cataract Patients," Melbourne Institute Working Paper Series wp2010n10, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  4. Martin Gaynor, 2006. "What Do We know About Competition and Quality in Health Care Markets?," The Centre for Market and Public Organisation 06/151, Department of Economics, University of Bristol, UK.
  5. Martin Gaynor & Robert J. Town, 2011. "Competition in Health Care Markets," NBER Working Papers 17208, National Bureau of Economic Research, Inc.
  6. Nuscheler, Robert, 2002. "Physician reimbursement, time-consistency and the quality of care
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    ," Discussion Papers, Research Unit: Market Processes and Governance FS IV 02-16, Social Science Research Center Berlin (WZB).
  7. Martin Gaynor & William B Vogt, 2003. "Competition among Hospitals," The Centre for Market and Public Organisation 03/087, Department of Economics, University of Bristol, UK.
  8. Ching-to Albert Ma & James F. Burgess Jr., 1992. "Quality Competition, Welfare, and Regulation," Papers 0024, Boston University - Industry Studies Programme.
  9. Martin Gaynor & Rodrigo Moreno-Serra & Carol Propper, 2010. "Death by Market Power: Reform, Competition and Patient Outcomes in the National Health Service," NBER Working Papers 16164, National Bureau of Economic Research, Inc.
  10. 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.
  11. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2009. "Hospital Competition and Quality with Regulated Prices," CESifo Working Paper Series 2635, CESifo Group Munich.
  12. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2010. "Price and quality in spatial competition," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 471-480, November.
  13. Martin Gaynor & Carol Propper & Stephan Seiler, 2012. "Free to Choose? Reform and Demand Response in the English National Health Service," NBER Working Papers 18574, National Bureau of Economic Research, Inc.
  14. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
  15. 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.
  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. 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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  20. Ho, Vivian & Hamilton, Barton H., 2000. "Hospital mergers and acquisitions: does market consolidation harm patients?," Journal of Health Economics, Elsevier, vol. 19(5), pages 767-791, September.
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