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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
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Web page: http://www.nhh.no/sam/
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  1. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2011. "Hospital Competition and Quality with Regulated Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113, pages 444-469, 06.
  2. Gaynor, Martin & Laudicella, Mauro & Propper, Carol, 2012. "Can governments do it better? Merger mania and hospital outcomes in the English NHS," CEPR Discussion Papers 8802, C.E.P.R. Discussion Papers.
  3. Salant, Stephen W & Switzer, Sheldon & Reynolds, Robert J, 1983. "Losses from Horizontal Merger: The Effects of an Exogenous Change in Industry Structure on Cournot-Nash Equilibrium," The Quarterly Journal of Economics, MIT Press, vol. 98(2), pages 185-99, May.
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  7. repec:ecj:econjl:v:122:y:2012:i::p:400-417 is not listed on IDEAS
  8. 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.
  9. Martin Gaynor, . "What Do We Know About Competition and Quality in Health Care Markets?," GSIA Working Papers 2006-E62, Carnegie Mellon University, Tepper School of Business.
  10. Ching-to Albert Ma & James F. Burgess Jr., 1992. "Quality Competition, Welfare, and Regulation," Papers 0024, Boston University - Industry Studies Programme.
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  12. 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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  17. 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.
  18. Robert Nuscheler, 2003. "Physician Reimbursement, Time-Consistency and the Quality of Care," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 159(2), pages 302-, June.
  19. 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.
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