Strategic Complements or Substitutes? The Case of Adopting Health Information Technology by U.S. Hospitals
72 Pages Posted: 16 Jan 2018 Last revised: 18 Sep 2019
Date Written: January 25, 2019
This paper explores the adoption choice of electronic medical records by U.S hospitals, which could exhibit strategic complements or substitutes. I find complementarities in adoption through a reduced-form analysis with instruments for the unobserved market characteristics. I further develop a dynamic oligopoly model to allow for strategic timing incentives that are missing in the static model. The lifetime value of complementarities accounts for 12% of the median sunk cost of implementation. A counterfactual analysis suggests that an incentive program rewarding coordination, not just adoption, is more effective in achieving interoperability, especially before the widespread adoption of the technology.
Keywords: Strategic complements/substitutes, technology adoption, HITECH Act, structural estimation
JEL Classification: I11, I18, L13, L15, O33
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