Welfare Standards in Hospital Mergers

41 Pages Posted: 23 Aug 2011 Last revised: 6 Oct 2011

See all articles by Katalin Katona

Katalin Katona

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

M. F. M. Canoy

University of tilburg

Date Written: July 31, 2011


There is a broad literature on the consequences of applying different welfare standards in merger control. Specific aspects of health care mergers, however, have not yet been considered. Two features of the health care sector are especially relevant. First, health care providers are possi-bly not profit oriented. Second, consumers can be covered by a mandatory health insurance and pay uniform premiums. The fact and level of payment is not connected to the consumption of health care services, which makes the concept consumer in merger control ambiguous. Previous literature on welfare standards in merger control has often built on the general result that consumer welfare is a more restrictive standard than total welfare. We model mergers on hospital markets and allow for non-profit maximizing behavior of providers and mandatory health insurance. We show that applying a restricted interpretation of consumer in health care merger control can reverse the relation between the two standards. Consumer welfare standard can be weaker than total welfare. Consequently, applying the wrong standard can lead to both clearing socially undesirable and to blocking socially desirable mergers. The possible negative consequences of applying a simple consumer welfare standard in merger control can be even stronger when hospitals maximize quality and put less weight on financial considerations. We also relate these results to the current practice of merger control.

Keywords: merger control, hospital merger, welfare standard, consumer welfare

JEL Classification: I11, I18, L44

Suggested Citation

Katona, Katalin and Canoy, Marcel F. M., Welfare Standards in Hospital Mergers (July 31, 2011). TILEC Discussion Paper No. 2011-038, Available at SSRN: https://ssrn.com/abstract=1914494 or http://dx.doi.org/10.2139/ssrn.1914494

Katalin Katona (Contact Author)

Dutch Healthcare Authority ( email )

Postbus 3017
Utrecht, 3502 GA

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE

Marcel F. M. Canoy

University of tilburg ( email )

Warandelaan 2
Tilburg, 5000 LE

HOME PAGE: http://www.tilburguniversity.edu/research/institutes-and-research-groups/tilec/

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