Private Equity, Consumers, and Competition: Evidence from the Nursing Home Industry

Abstract

This paper studies how product market competition can shape how private equity (PE) acquisitions impact consumers. We examine PE acquisitions in the nursing home industry and find that PE-owned facilities exhibit greater "competitive sensitivity:" they compete more aggressively when competitive incentives are strong and exploit market power more aggressively when competitive incentives are weak. Our study leverages variation in competitive incentives deriving both from geographic differences in local market concentration, as well as from a pro-competitive policy that helped consumers better compare nursing homes. Our findings suggest that policymakers and regulators concerned about the impact of PE ownership on consumers should pay careful attention to the concentration of markets where PE acquisitions occur and consider pro-competitive policies as a tool to influence PE, mitigating or even reversing its potentially adverse consequences.

Keywords: Private equity, Buyouts, Competition, Health care, Nursing homes, Product quality, Disclosure, Ratings

JEL Classification: G34, I11, I18, L11, L13, L15