Entry Decisions and Asymmetric Competition between Non-Profit and For-Profit Homes in the Long-Term Care Market

53 Pages Posted: 7 Oct 2019 Last revised: 6 May 2020

See all articles by Iris Grant

Iris Grant

KU Leuven - Department of Economics

Iris Kesternich

KU Leuven - Department of Economics; Ludwig Maximilian University of Munich (LMU) - Faculty of Economics

Johannes Van Biesebroeck

K.U.Leuven; Centre for Economic Policy Research (CEPR)

Date Written: September 2019

Abstract

Mostly due to population aging, the demand for long-term care (LTC) services is growing strongly. Historically, non-profit nursing homes dominated the German LTC market, but the recent entry wave was tilted towards for-profit competitors. Using a rich administrative dataset on all LTC facilities in Germany, we examine strategic interaction between these two ownership types in a static entry model. The estimates of competitive effects imply that non-profit and for-profit homes are substitutes, but competition is much stronger within-type, suggesting that they provide differentiated products. For-profit homes in particular act as if they operate in a different market segment, but over time their entry behavior has converged to that of the more established non-profits. Counterfactual simulations of proposed changes in government policy suggest a large impact on the fraction of markets that remain unserved or only served by a single type.

Keywords: Competition, For-profit, Long-term care, non-profit

JEL Classification: I11, L13, L22, L33

Suggested Citation

Grant, Iris and Kesternich, Iris and Van Biesebroeck, Johannes, Entry Decisions and Asymmetric Competition between Non-Profit and For-Profit Homes in the Long-Term Care Market (September 2019). CEPR Discussion Paper No. DP14005, Available at SSRN: https://ssrn.com/abstract=3464534

Iris Grant (Contact Author)

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium

Iris Kesternich

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

Johannes Van Biesebroeck

K.U.Leuven ( email )

Naamsestraat 69
B-3000 Leuven
Belgium
+3216326793 (Phone)
+3216326796 (Fax)

HOME PAGE: http://www.econ.kuleuven.be/public/N07057/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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