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Hospital Mergers with Regulated Prices

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  • Brekke, Kurt R.

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

  • Siciliani, Luigi

    () (University of York)

  • Straume, Odd Rune

    () (University of Minho)

Abstract

We study the effects of a hospital merger using a spatial competition framework with semialtruistic hospitals that invest in quality and expend cost-containment effort facing regulated prices. We find that the merging hospitals always reduce quality, whereas non-merging hospitals respond by increasing (reducing) quality if qualities are strategic substitutes (complements). A merger leads to higher average treatment cost efficiency and, if qualities are strategic substitutes, might also increase average quality in the market. If a merger leads to hospital closure, the resulting effect on quality is positive (negative) for all hospitals in the market if qualities are strategic substitutes (complements). Whether qualities are strategic substitutes or complements depends on the degree of altruism, the effectiveness of cost-containment effort, and the degree of cost substitutability between quality and treatment volume.

Suggested Citation

  • Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2014. "Hospital Mergers with Regulated Prices," Discussion Paper Series in Economics 21/2014, Norwegian School of Economics, Department of Economics.
  • Handle: RePEc:hhs:nhheco:2014_021
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    1. repec:eee:jhecon:v:57:y:2018:i:c:p:131-146 is not listed on IDEAS

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    Keywords

    Hospital mergers; Quality competition; Cost efficiency; Antitrust.;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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