Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Friday, November 4, 2011

Do Mergers Really Reduce Costs? Evidence from Hospitals

Posted by D. Daniel Sokol

Teresa D. Harrison, Drexel University - Department of Economics & International Business asks Do Mergers Really Reduce Costs? Evidence from Hospitals.

ABSTRACT: In this paper, we compare potential and realized cost savings from hospital mergers. Our approach isolates changes in realized cost savings due to different output mixes from systematic changes due to time and also provides a measure of the potential cost savings due to scale economies. Our findings suggest that economies of scale are present for merging hospitals and they realize these cost savings immediately following a merger. However, we also show that over time, cost savings from the merger decrease and the proportion of hospitals experiencing positive cost savings declines.

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