Antitrust & Competition Policy Blog

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

Thursday, June 13, 2013

Hospital Mergers: A Spatial Competition Approach

Posted by D. Daniel Sokol

Kurt R. Brekke (Department of Economics and Centre and Health Economics Bergen, Norwegian School of Economics), Luigi Siciliani (Department of Economics and Centre for Health Economics, University of York, Heslington) and Odd Rune Straume (Department of Economics, University of Minho) offer Hospital Mergers: A Spatial Competition Approach.

ABSTRACT: 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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