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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. Propper, C & Laudicella, M & Gaynor, M, 2012. "Can governments do it better? Merger mania and hospital outcomes in the English NHS," Working Papers 9182, Imperial College, London, Imperial College Business School.
  2. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2010. "Price and quality in spatial competition," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 471-480, November.
  3. Zack Cooper & Steve Gibbons & Simon Jones & Alistair McGuire, 2010. "Does Hospital Competition Save Lives? Evidence from the English NHS Patient Choice Reforms," SERC Discussion Papers 0041, Spatial Economics Research Centre, LSE.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. Martin Gaynor & Rodrigo Moreno-Serra & Carol Propper, 2010. "Death by Market Power: Reform, Competition and Patient Outcomes in the National Health Service," NBER Working Papers 16164, National Bureau of Economic Research, Inc.
  9. Martin Gaynor & William B. Vogt, 2003. "Competition Among Hospitals," NBER Working Papers 9471, National Bureau of Economic Research, Inc.
  10. Ching-to Albert Ma & James F. Burgess Jr., 1992. "Quality Competition, Welfare, and Regulation," Papers 0024, Boston University - Industry Studies Programme.
  11. repec:ecj:econjl:v:122:y:2012:i::p:400-417 is not listed on IDEAS
  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. 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. 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.
  15. 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.
  16. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2011. "Hospital Competition and Quality with Regulated Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113, pages 444-469, 06.
  17. 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.
  18. 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.
  19. 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.
  20. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
  21. 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.
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