Buyer Power and Price Discrimination: The Case of the UK Care Home Market

ESRC Centre for Competiton Policy Working Paper Series

39 Pages Posted: 2 May 2011  

Morten Hviid

University of East Anglia - Centre for Competition Policy (CCP)

Ruth Hancock

University of Essex - Department of Health and Human Sciences

Date Written: December 20, 2010

Abstract

UK Local Authorities purchase care home places on behalf of a large group of people following an assessment of their ability to meet the care home fee from their income and wealth. All other buyers of care home services are atomistic and the care home market is characterised by a large number of relatively small providers. This may give local authorities buyer power. We show the consequences of substantial buyer power by one consumer when sellers are competitive but each faces capacity constraints. In the free entry equilibrium we show that any abuse of this buyer power may lead to part of the market, “the squeezed middle” not being served. We use a microsimulation model to quantify the size of the squeezed middle and assess the implications of the form of the assessment of people’s ability to meet care home fees, for local authorities’ ability to exercise buyer power

Keywords: buyer power, care home market, long term care financing

JEL Classification: I11, I19, I31

Suggested Citation

Hviid, Morten and Hancock, Ruth, Buyer Power and Price Discrimination: The Case of the UK Care Home Market (December 20, 2010). ESRC Centre for Competiton Policy Working Paper Series. Available at SSRN: https://ssrn.com/abstract=1728769 or http://dx.doi.org/10.2139/ssrn.1728769

Morten Hviid (Contact Author)

University of East Anglia - Centre for Competition Policy (CCP) ( email )

UEA
Norwich Research Park
Norwich, Norfolk NR47TJ
United Kingdom

Ruth Hancock

University of Essex - Department of Health and Human Sciences ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

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