A Structural Approach to Market Definition with an Application to the Hospital Industry

47 Pages Posted: 12 Jul 2013

See all articles by Martin Gaynor

Martin Gaynor

Carnegie Mellon University; National Bureau of Economic Research (NBER); Leverhulme Centre for Market and Public Organisation

Samuel A. Kleiner

Government of the United States of America - Federal Trade Commission

William B. Vogt

RAND Corporation; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2013

Abstract

Market definition is common in merger analysis, and often the decisive factor in antitrust cases. This has been particularly relevant in the hospital industry, where many merger challenges have been denied due to disagreements over geographic market definition. We compare geographic markets produced using frequently employed ad hoc methodologies to structural methods that directly apply the ‘SSNIP test’ to California hospitals. Our results suggest that markets produced using previous methods overstate hospital demand elasticities by a factor of 2.4 to 3.4 and were likely a contributing factor to the permissive legal environment for hospital mergers.

Suggested Citation

Gaynor, Martin and Kleiner, Samuel A. and Vogt, William B., A Structural Approach to Market Definition with an Application to the Hospital Industry (June 2013). The Journal of Industrial Economics, Vol. 61, Issue 2, pp. 243-289, 2013, Available at SSRN: https://ssrn.com/abstract=2292814 or http://dx.doi.org/10.1111/joie.12015

Martin Gaynor (Contact Author)

Carnegie Mellon University ( email )

H. John Heinz III School of Public Policy
and Management
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Leverhulme Centre for Market and Public Organisation

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Samuel A. Kleiner

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

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William B. Vogt

RAND Corporation ( email )

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National Bureau of Economic Research (NBER)

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