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Hospital mergers with regulated prices

Brekke, Kurt Richard; Siciliani, Luigi; Straume, Odd Rune
Working paper
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URI
http://hdl.handle.net/11250/196298
Date
2014-05
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  • Discussion papers (SAM) [607]
Abstract
We study the effects of a hospital merger using a spatial competition framework with semialtruistic

hospitals that invest in quality and expend cost-containment effort facing regulated

prices. We find that the merging hospitals always reduce quality, whereas non-merging hospitals

respond by increasing (reducing) quality if qualities are strategic substitutes (complements). A

merger leads to higher average treatment cost efficiency and, if qualities are strategic substitutes,

might also increase average quality in the market. If a merger leads to hospital closure, the

resulting effect on quality is positive (negative) for all hospitals in the market if qualities are

strategic substitutes (complements). Whether qualities are strategic substitutes or complements

depends on the degree of altruism, the effectiveness of cost-containment effort, and the degree of

cost substitutability between quality and treatment volume.
Publisher
Norwegian School of Economics. Department of Economics
Series
Discussion paper;21/2014

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