Vertical Integration and Exclusive Vertical Restraints between Insurers and Hospitals

28 Pages Posted: 28 Mar 2011  

Rudy Douven

CPB Netherlands Bureau for Economic Policy Analysis; CPB Netherlands Bureau for Economic Policy Analysis

Rein Halbersma

Dutch Healthcare Authority; Tilburg Law and Economics Center (TILEC)

Katalin Katona

Dutch Healthcare Authority; Tilburg Law and Economics Center (TILEC)

Victoria Shestalova

Netherlands Bureau for Economic Policy Analysis

Date Written: March 10, 2011

Abstract

We examine vertical integration and exclusive vertical restraints in healthcare markets where insurers and hospitals bilaterally bargain over contracts. We employ a bargaining model in a concentrated health care market of two hospitals and two health insurers competing on premiums. Without vertical integration, some bilateral contracts will not be concluded only if hospitals are sufficiently differentiated, whereas with vertical integration we find that a breakdown of a contract will always occur. There may be two reasons for not concluding a contract. First, hospitals may choose to soften competition by contracting only one insurer in the market. Second, insurers and hospitals may choose to increase product differentiation by contracting asymmetric hospital networks. Both types raise total industry profits and lower consumer welfare.

Keywords: insurer-provider networks, vertical integration, exclusive

JEL Classification: G22, G34, I11, L14, L42

Suggested Citation

Douven, Rudy and Halbersma, Rein and Katona, Katalin and Shestalova, Victoria, Vertical Integration and Exclusive Vertical Restraints between Insurers and Hospitals (March 10, 2011). TILEC Discussion Paper No. 2011-016. Available at SSRN: https://ssrn.com/abstract=1781685 or http://dx.doi.org/10.2139/ssrn.1781685

Rudy Douven (Contact Author)

CPB Netherlands Bureau for Economic Policy Analysis ( email )

P.O. Box 80510
The Hague, 2508 GM
Netherlands

HOME PAGE: http://www.cpb.nl/nl/org/homepages/rcmhd/

CPB Netherlands Bureau for Economic Policy Analysis ( email )

P.O. Box 80510
The Hague, 2508 GM
Netherlands

HOME PAGE: http://www.cpb.nl/nl/org/homepages/rcmhd/

Rein Halbersma

Dutch Healthcare Authority ( email )

Postbus 3017
Utrecht, 3502 GA
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Katalin Katona

Dutch Healthcare Authority ( email )

Postbus 3017
Utrecht, 3502 GA
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Victoria Shestalova

Netherlands Bureau for Economic Policy Analysis ( email )

2508 GM The Hague
Netherlands

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