Vertical integration and exclusive vertical restraints in health-care markets

Rudy Douven (), Victoria Shestalova, Rein Halbersma and Katalin Katona
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Rudy Douven: CPB Netherlands Bureau for Economic Policy Analysis

No 172, CPB Discussion Paper from CPB Netherlands Bureau for Economic Policy Analysis

Abstract: We examine vertical integration and exclusive vertical restraints in health-care markets where insurers and hospitals bilaterally bargain over contracts. We employ a bargaining model in a concentrated health-care market of two hospitals and two health insurers competing on premiums. Without vertical integration, some bilateral contracts will not be concluded only if hospitals are sufficiently differentiated, whereas with vertical integration we find that a breakdown of a contract will always occur. There may be two reasons for not concluding a contract. First, hospitals maychoose to soften competition by contracting only one insurer in the market. Second, insurers and hospitals may choose to increase product differentiation by contracting asymmetric hospital networks. Both types raise total industry profits and lower consumer welfare.

JEL-codes: G22 G34 I11 L14 L42 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-com and nep-hea
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