Does Market Power Encourage or Discourage Investment? Evidence from the Hospital Market

68 Pages Posted: 30 Oct 2015 Last revised: 3 Jan 2020

See all articles by Elena Patel

Elena Patel

University of Utah - Department of Finance

Nathan Seegert

University of Utah - Department of Finance

Date Written: October 28, 2015

Abstract

Does market power encourage or discourage investment? This is an open question due to theoretical ambiguity and empirical difficulties. The answer to this question is particularly important in the hospital market, where market power has increased dramatically since the 1990s. To answer this, we exploit an investment tax shock and data on the universe of US hospitals. We find a negative relationship between competition and investment. In particular, hospitals in concentrated markets increased investment by 6.4% ($2.7 million) more in response to tax incentives than firms in competitive markets. Further, firms' investment responses monotonically increased with market concentration.

Keywords: Market concentration, oligopoly and other imperfect markets, nonprofit, corporate investment, business taxes, hospitals

JEL Classification: L13, L33, G11, G31, G38, H25

Suggested Citation

Patel, Elena and Seegert, Nathan, Does Market Power Encourage or Discourage Investment? Evidence from the Hospital Market (October 28, 2015). Available at SSRN: https://ssrn.com/abstract=2682827 or http://dx.doi.org/10.2139/ssrn.2682827

Elena Patel

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

Nathan Seegert (Contact Author)

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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