Regulation and Capacity Competition in Health Care: Evidence from Dialysis Markets

35 Pages Posted: 14 Oct 2013

See all articles by Mian Dai

Mian Dai

Drexel University

Xun Tang

Rice University - Department of Economics

Date Written: June 28, 2013


This paper studies entry and capacity decisions by dialysis providers in the U.S. We estimate a structural model where providers make strategic continuous choices of capacities based on private information about own costs and beliefs about competitors’ behaviors. We evaluate the impact on market structure and provider profits under counterfactual regulatory policies that increase per capacity cost or reduce per capacity payment. We find that these policies reduce the market capacity of dialysis stations. However, the downward sloping reaction curve shields some providers from negative profit shocks in certain markets. The paper also has a methodological contribution in that it proposes new estimators for Bayesian games with continuous actions, which differ qualitative from discrete Bayesian games such as those with binary entry decisions.

Keywords: Bayesian Games with Continuous Actions, U.S. Dialysis Market

JEL Classification: L11, L13, I11

Suggested Citation

Dai, Mian and Tang, Xun, Regulation and Capacity Competition in Health Care: Evidence from Dialysis Markets (June 28, 2013). PIER Working Paper No. 13-057, Available at SSRN: or

Mian Dai

Drexel University ( email )

Philadelphia, PA 19104
United States

Xun Tang (Contact Author)

Rice University - Department of Economics ( email )

6100 South Main Street
Houston, TX 77005
United States

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