Hospital Mergers: A Spatial Competition Approach

Brekke, Kurt Richard; Siciliani, Luigi; Straume, Odd Rune

doi:10.2139/ssrn.2253120

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Hospital Mergers: A Spatial Competition Approach

NHH Dept. of Economics Discussion Paper No. 08/2013

43 Pages Posted: 18 Apr 2013

See all articles by Kurt Richard Brekke

Kurt Richard Brekke

NHH Norwegian School of Economics - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Odd Rune Straume

CESifo (Center for Economic Studies and Ifo Institute); University of Minho - Economic Policies Research Unit (NIPE)

Date Written: April 4, 2013

Abstract

Using a spatial competition framework with three ex ante identical hospitals, we study the effects of a hospital merger on quality, price and welfare. The merging hospitals always reduce quality, but the non-merging hospital responds by reducing quality if prices are fixed and increasing quality if not. The merging hospitals increase prices if demand responsiveness to quality is sufficiently low, whereas the non-merging hospital always increases its price. If prices are endogenous, a merger leads to higher average prices and quality in the market. A merger is harmful for total patient utility but can improve social welfare under price competition.

Keywords: Hospital mergers, Spatial Competition, Antitrust

JEL Classification: I11, I18, L13, L44

Suggested Citation: Suggested Citation

Brekke, Kurt Richard and Siciliani, Luigi and Straume, Odd Rune and Straume, Odd Rune, Hospital Mergers: A Spatial Competition Approach (April 4, 2013). NHH Dept. of Economics Discussion Paper No. 08/2013, Available at SSRN: https://ssrn.com/abstract=2253120 or http://dx.doi.org/10.2139/ssrn.2253120