Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

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

Kurt R. Brekke (), Luigi Siciliani () and Odd Rune Straume ()
Additional contact information
Kurt R. Brekke: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Luigi Siciliani: University of York, Postal: Department of Economics and Related Studies; and Centre for Health Economics, University of York, , Heslington,, York YO10 5DD, UK
Odd Rune Straume: University of Minho and University of Bergen, Postal: Department of Economics/NIPE, University of Minho, Campus de Gualtar, , 4710-057 Braga,, Portugal

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.

JEL-codes: I11; I18; L13; L44

38 pages, April 4, 2013

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