Mergers and Marginal Costs: New Evidence on Hospital Buyer Power

43 Pages Posted: 22 Aug 2018

See all articles by Stuart Craig

Stuart Craig

University of Pennsylvania - The Wharton School

Matthew Grennan

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Ashley Swanson

Columbia University - Columbia Business School; NBER

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 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 )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Matthew Grennan

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
307 Colonial Penn Center
Philadelphia, PA 19104
United States

HOME PAGE: http://www.wharton.upenn.edu/faculty/grennan.cfm

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ashley Swanson

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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