Hospital Competition Under Patient Inertia: Do Switching Costs Stimulate Quality Provision?

Luís Sá

No 16/2019, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: Recent empirical evidence establishes previous use as a strong predictor of patient choice of hospital and indicates that switching costs explain a significant share of inertia in the hospital industry. In a model of competition between two semi-altruistic and horizontally differentiated hospitals with inherited demand, I investigate the effect of lower switching costs on quality provision and show that it depends on the hospitals' production technology and degree of altruism. If cost substitutability (complementarity) between quality and output is sufficiently weak (strong) relative to altruism, lower switching costs reduce quality at the high-volume hospital, average quality, and patient welfare. While milder patient preferences increase the scope for an increase in quality at both hospitals, it can only occur if hospitals are semi-altruistic. Finally, I show that the distribution of patients between hospitals matters. Even if hospital-level quality and patient welfare increase, lower switching costs may lead to lower average quality.

Keywords: Hospital competition; quality; switching costs; patient choice; volume-outcome effects; altruism. (search for similar items in EconPapers)
JEL-codes: I11 I18 L13 L51 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com, nep-hea and nep-ore
References: Add references at CitEc
Citations:

Downloads: (external link)
http://repositorium.sdum.uminho.pt/bitstream/1822/62589/1/NIPE_WP_16_2019.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nip:nipewp:16/2019

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in NIPE Working Papers from NIPE - Universidade do Minho Núcleo de Investigação em Políticas Económicas e Empresariais, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal. Contact information at EDIRC.
Bibliographic data for series maintained by NIPE ().