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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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Web page: http://www.nhh.no/sam/
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  1. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2009. "Hospital Competition and Quality with Regulated Prices," CESifo Working Paper Series 2635, CESifo Group Munich.
  2. 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.
  3. Martin Gaynor & Carol Propper & Stephan Seiler, 2012. "Free to choose?: reform and demand response in the English National Health Service," LSE Research Online Documents on Economics 48934, London School of Economics and Political Science, LSE Library.
  4. Martin Gaynor & Rodrigo Moreno-Serra & Carol Propper, 2010. "Death by Market Power. Reform, Competition and Patient Outcomes in the National Health Service," The Centre for Market and Public Organisation 10/242, Department of Economics, University of Bristol, UK.
  5. 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.
  6. 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.
  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. 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.
  9. 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.
  10. Zack Cooper & Stephen Gibbons & Simon Jones & Alistair McGuire, 2010. "Does hospital competition save lives?: evidence from the English NHS patient choice reforms," LSE Research Online Documents on Economics 28584, London School of Economics and Political Science, LSE Library.
  11. 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.
  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.
  13. 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.
  14. 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.
  15. 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.
  16. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2009. "Price and quality in spatial competition," NIPE Working Papers 21/2009, NIPE - Universidade do Minho.
  17. 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.
  18. Ching-to Albert Ma & James F. Burgess Jr., 1992. "Quality Competition, Welfare, and Regulation," Papers 0024, Boston University - Industry Studies Programme.
  19. 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.
  20. repec:ecj:econjl:v:122:y:2012:i::p:400-417 is not listed on IDEAS
  21. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
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