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Hospital Mergers: A Spatial Competition Approach

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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File URL: http://www3.eeg.uminho.pt/economia/nipe/docs/2013/NIPE_WP_04_2013.pdf
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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 04/2013.

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Date of creation: 2013
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Handle: RePEc:nip:nipewp:04/2013
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  1. Martin Gaynor & Mauro Laudicella & Carol Propper, 2012. "Can governments do it better? Merger mania and hospital outcomes in the English NHS," The Centre for Market and Public Organisation 12/281, Department of Economics, University of Bristol, UK.
  2. 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.
  3. Zack Cooper & Stephen Gibbons & Simon Jones & Alistair McGuire, 2011. "Does Hospital Competition Save Lives? Evidence From The English NHS Patient Choice Reforms," Economic Journal, Royal Economic Society, vol. 121(554), pages F228-F260, 08.
  4. 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.
  5. 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.
  6. 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.
  7. Martin Gaynor & Carol Propper & Stephan Seiler, 2012. "Free to Choose? Reform and Demand Response in the English National Health Service," CEP Discussion Papers dp1179, Centre for Economic Performance, LSE.
  8. Gaynor, Martin & Vogt, William B, 2003. " Competition among Hospitals," RAND Journal of Economics, The RAND Corporation, vol. 34(4), pages 764-85, Winter.
  9. 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.
  10. repec:ecj:econjl:v:122:y:2012:i::p:400-417 is not listed on IDEAS
  11. Martin Gaynor, 2006. "What Do We Know About Competition and Quality in Health Care Markets?," NBER Working Papers 12301, National Bureau of Economic Research, Inc.
  12. 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.
  13. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2008. "Hospital competition and quality with regulated prices," NIPE Working Papers 06/2008, NIPE - Universidade do Minho.
  14. 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.
  15. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
  16. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 577-615, May.
  17. Ching-to Albert Ma & James F. Burgess Jr., 1992. "Quality Competition, Welfare, and Regulation," Papers 0024, Boston University - Industry Studies Programme.
  18. 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.
  19. 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.
  20. 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.
  21. 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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