Mergers and Marginal Costs: New Evidence on Hospital Buyer Power

43 Pages Posted: 22 Aug 2018 Last revised: 9 Feb 2023

See all articles by Stuart Craig

Stuart Craig

University of Pennsylvania - The Wharton School

Matthew Grennan

National Bureau of Economic Research (NBER); University of California, Berkeley - Haas School of Business

Ashley Swanson

University of Wisconsin - Madison - Department of Economics; NBER

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Date Written: August 2018

Abstract

We estimate the effects of horizontal mergers on marginal cost efficiencies – an ubiquitous merger justification – using data containing supply purchase orders from a large sample of US hospitals 2009-2015. The data provide a level of detail that has been difficult to observe previously, and a variety of product categories that allows us to examine economic mechanisms underlying “buyer power.” We find that merger target hospitals save on average $176 thousand (or 1.5 percent) annually, driven by geographically local efficiencies in price negotiations for high-tech “physician preference items.” We find only mixed evidence on savings by acquirers.

Suggested Citation

Craig, Stuart and Grennan, Matthew and Grennan, Matthew and Swanson, Ashley, Mergers and Marginal Costs: New Evidence on Hospital Buyer Power (August 2018). NBER Working Paper No. w24926, Available at SSRN: https://ssrn.com/abstract=3236732

Stuart Craig (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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Matthew Grennan

National Bureau of Economic Research (NBER) ( email )

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University of California, Berkeley - Haas School of Business ( email )

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Ashley Swanson

University of Wisconsin - Madison - Department of Economics ( email )

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NBER ( email )

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