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Hospital mergers : a spatial competition approach

Brekke, Kurt Richard; Siciliani, Luigi; Straume, Odd Rune
Working paper
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URI
http://hdl.handle.net/11250/163406
Date
2013-04
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  • Discussion papers (SAM) [586]
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.
Publisher
Norwegian School of Economics. Department of Economics
Series
Discussion paper;8/2013

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