Estimation and Identification of Merger Effects: An Application to Hospital Mergers
Advances in structural demand estimation have substantially improved economists' ability to forecast the impact of mergers. However, these models rely on extensive assumptions about consumer choice and firm objectives, and ultimately observational methods are needed to test their validity. Observational studies, in turn, suffer from selection problems arising from the fact that merging entities differ from non-merging entities in unobserved ways. To obtain an accurate estimate of the effect of consummated mergers, I propose a combination of rival analysis and instrumental variables. By focusing on the effect of a merger on the behavior of rival firms, and instrumenting for these mergers, unbiased estimates of the effect of a merger on market outcomes can be obtained. Using this methodology, I evaluate the impact of independent hospital mergers between 1989 and 1996 on rivals' prices. I find sharp increases in rivals' prices following a merger, with the greatest effect on the closest rivals. The results for this industry are more consistent with predictions from structural models than with prior observational estimates.
|Date of creation:||Oct 2005|
|Publication status:||published as Leemore Dafny, 2009. "Estimation and Identification of Merger Effects: An Application to Hospital Mergers," The Journal of Law and Economics, vol 52(3), pages 523-550.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gaynor, Martin & Vogt, William B., 2000.
"Antitrust and competition in health care markets,"
Handbook of Health Economics,
in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 27, pages 1405-1487
- Martin Gaynor & William B. Vogt, 1999. "Antitrust and Competition in Health Care Markets," NBER Working Papers 7112, National Bureau of Economic Research, Inc.
- Martin Gaynor & William B. Vogt, "undated". "Antitrust and Competition in Health Care Markets," GSIA Working Papers 1999-E29, Carnegie Mellon University, Tepper School of Business.
- 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.
- 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.
- Gaynor, Martin & Vogt, William B, 2003.
" Competition among Hospitals,"
RAND Journal of Economics,
The RAND Corporation, vol. 34(4), pages 764-785, Winter.
- Martin Gaynor & William Vogt, 2002. "Competition Among Hospitals," GSIA Working Papers 2003-E20, Carnegie Mellon University, Tepper School of Business.
- Martin Gaynor & William B. Vogt, 2003. "Competition Among Hospitals," NBER Working Papers 9471, National Bureau of Economic Research, Inc.
- 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.
- Tay, Abigail, 2003. " Assessing Competition in Hospital Care Markets: The Importance of Accounting for Quality Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 786-814, Winter.
- Krishnan, Ranjani, 2001. "Market restructuring and pricing in the hospital industry," Journal of Health Economics, Elsevier, vol. 20(2), pages 213-237, March.
- Capps, Cory & Dranove, David & Satterthwaite, Mark, 2003. " Competition and Market Power in Option Demand Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 737-763, Winter.
- Leemore S. Dafny, 2005. "How Do Hospitals Respond to Price Changes?," American Economic Review, American Economic Association, vol. 95(5), pages 1525-1547, December.
- Robert Connor & Roger Feldman & Bryan Dowd, 1998. "The Effects of Market Concentration and Horizontal Mergers on Hospital Costs and Prices," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 5(2), pages 159-180.
- Dranove, David & White, William D, 1994. "Recent Theory and Evidence on Competition in Hospital Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 169-209, Spring.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:11673. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.