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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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Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal

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  18. 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.
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  21. repec:ecj:econjl:v:122:y:2012:i::p:400-417 is not listed on IDEAS
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