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Department of Economics, Norwegian School of Economics (NHH) Discussion Paper Series in Economics, Department of Economics, Norwegian School of Economics (NHH)

No 8/2013:
Hospital Mergers: A Spatial Competition Approach

Kurt R. Brekke (), Luigi Siciliani () and Odd Rune Straume ()

Abstract: Using a spatial competition framework with three ex ante identical hospitals, we study the effects of a hospital merger on quality, price and welfare. The merging hospitals always reduce quality, but the non-merging hospital responds by reducing quality if prices are fixed and increasing quality if not. The merging hospitals increase prices if demand responsiveness to quality is sufficiently low, whereas the non-merging hospital always increases its price. If prices are endogenous, a merger leads to higher average prices and quality in the market. A merger is harmful for total patient utility but can improve social welfare under price competition.

Keywords: Hospital mergers; Spatial Competition; Antitrust.; (follow links to similar papers)

JEL-Codes: I11; I18; L13; L44; (follow links to similar papers)

38 pages, April 4, 2013

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