Selective Contracting and Foreclosure in Health Care Markets

CentER Discussion Paper Series No. 2009-89

TILEC Discussion Paper No. 2009-045

36 Pages Posted: 21 Nov 2009 Last revised: 8 Oct 2010

See all articles by Michiel Bijlsma

Michiel Bijlsma

De Nederlandsche Bank; Tilburg Law and Economics Center (TILEC)

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Gijsbert Zwart

University of Groningen

Multiple version iconThere are 2 versions of this paper

Date Written: November 16, 2009

Abstract

We analyze exclusive contracts between health care providers and insurers in a model where some consumers choose to stay uninsured. In case of a monopoly insurer, exclusion of a provider changes the distribution of consumers who choose not to insure. Although the foreclosed care provider remains active in the market for the non-insured, we show that exclusion leads to anti-competitive effects on this non-insured market. As a consequence exclusion can raise industry profits, and then occurs in equilibrium. Under competitive insurance markets, the anticompetitive exclusive equilibrium survives. Uninsured consumers, however, are now not better off without exclusion. Competition among insurers raises prices in equilibria without exclusion, as a result of a horizontal analogue to the double marginalization effect. Instead, under competitive insurance markets exclusion is desirable as long as no provider is excluded by all insurers.

Keywords: health insurance, uninsured, selective contracting, exclusion, foreclosure, anti-competitive effects

JEL Classification: L42, I11, G22

Suggested Citation

Bijlsma, Michiel and Boone, Jan and Zwart, Gijsbert, Selective Contracting and Foreclosure in Health Care Markets (November 16, 2009). CentER Discussion Paper Series No. 2009-89, TILEC Discussion Paper No. 2009-045, Available at SSRN: https://ssrn.com/abstract=1509290 or http://dx.doi.org/10.2139/ssrn.1509290

Michiel Bijlsma (Contact Author)

De Nederlandsche Bank ( email )

Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Jan Boone

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2399 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Gijsbert Zwart

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

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