What Do We Know About Competition and Quality in Health Care Markets?

42 Pages Posted: 29 Jun 2006 Last revised: 13 Aug 2010

See all articles by Martin Gaynor

Martin Gaynor

Carnegie Mellon University; National Bureau of Economic Research (NBER); Leverhulme Centre for Market and Public Organisation

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Date Written: June 2006

Abstract

The goal of this paper is to identify key issues concerning the nature of competition in health care markets and its impacts on quality and social welfare and to identify pertinent findings from the theoretical and empirical literature on this topic. The theoretical literature in economics on competition and quality, the theoretical literature in health economics on this topic, and the empirical findings on competition and quality in health care markets are surveyed and their findings assessed.Theory is clear that competition increases quality and improves consumer welfare when prices are regulated (for prices above marginal cost), although the impacts on social welfare are ambiguous. When firms set both price and quality, both the positive and normative impacts of competition are ambiguous. The body of empirical work in this area is growing rapidly. At present it consists entirely of work on hospital markets. The bulk of the empirical evidence for Medicare patients shows that quality is higher in more competitive markets. The empirical results for privately insured patients are mixed across studies.

Suggested Citation

Gaynor, Martin, What Do We Know About Competition and Quality in Health Care Markets? (June 2006). NBER Working Paper No. w12301. Available at SSRN: https://ssrn.com/abstract=910834

Martin Gaynor (Contact Author)

Carnegie Mellon University ( email )

H. John Heinz III School of Public Policy
and Management
Pittsburgh, PA 15213-3890
United States
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National Bureau of Economic Research (NBER)

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Leverhulme Centre for Market and Public Organisation

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