Competition in Networks: An Analysis of Hospital Pricing Behavior

29 Pages Posted: 28 Sep 1999

See all articles by Robert J. Town

Robert J. Town

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Gregory Vistnes

Government of the United States of America - Federal Trade Commission

Date Written: September 1999

Abstract

In this paper we develop a framework for analyzing the behavior of hospitals under selective contracting. We use a unique data set on hospitals in the Southern California region from 1990?1993 to estimate the factors affecting the actual negotiated prices paid to hospitals by two major HMOs. We find that a hospital?s bargaining power, and hence its price, decreases in the ability of the HMO to construct alternative networks that exclude the hospital. Our findings also indicate that hospitals should not be given free reign to merge as some hospital mergers, even in urban areas, can lead to anti-competitive price increases for inpatient services. Beyond hospitals, our methodology can also be applied to other industries where firms contract with multiple suppliers.

JEL Classification: I11, L13

Suggested Citation

Town, Robert J. and Vistnes, Gregory, Competition in Networks: An Analysis of Hospital Pricing Behavior (September 1999). Available at SSRN: https://ssrn.com/abstract=181608 or http://dx.doi.org/10.2139/ssrn.181608

Robert J. Town

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gregory Vistnes (Contact Author)

Government of the United States of America - Federal Trade Commission ( email )

6th and Pennsylvania Ave., NW
Washington, DC 20580
United States
202-326-2937 (Phone)

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