Tuesday, November 19, 2019
Entry Decisions and Asymmetric Competition between Non-Profit and For-Profit Homes in the Long-Term Care Market
Iris Grant KU Leuven - Department of Economics, Iris Kesternich KU Leuven - Department of Economics; Ludwig Maximilian University of Munich (LMU) - Faculty of Economics, and Johannes Van Biesebroeck K.U.Leuven; Centre for Economic Policy Research (CEPR) explore Entry Decisions and Asymmetric Competition between Non-Profit and For-Profit Homes in the Long-Term Care Market.
ABSTRACT: The demand for long-term care (LTC) services is growing strongly, mostly due to population aging. Historically, the German LTC market was dominated by non-profit nursing homes, but the recent entry wave was tilted towards for-profit competitors. Using a rich administrative dataset on all LTC facilities in Germany, we examine strategic interaction between these two ownership types in a static entry model. The estimates of competitive effects imply that non-profit and for-profit homes are substitutes, but competition is much stronger within-type, suggesting that they provide differentiated products. For-profit homes in particular act as if they operate in a different market segment, but over time their entry behavior has converged to that of the more established non-profits. Counterfactual simulations of proposed changes in government policy suggest that even small changes favoring either type could have a large impact on the fraction of markets that remain unserved or only served by a single type.