Quality competition and hospital mergers: An experiment

Johann Han, Nadja Kairies-Schwarz and Markus Vomhof

No 609, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: Based on a Salop model with regulated prices, we investigate quality provision behavior of competing hospitals before and after a merger. For this, we use a controlled laboratory experiment where subjects decide on the level of treatment quality as head of a hospital. We find that the post-merger average quality is significantly lower than the average pre-merger quality. However, for merger insiders and outsiders, average quality choices are significantly higher than predicted for pure profit maximizing hospitals. We show that the upward deviation is potentially driven by altruistic behavior towards patients. Furthermore, we fi nd that in case sufficient cost synergies are realized by the merged hospitals, this yields a significant increase in average quality choices compared to the scenario without synergies. Finally, we find that our results do not change when comparing individual to team decisions.

Keywords: hospital mergers; quality competition; altruism; laboratory experiment (search for similar items in EconPapers)
JEL-codes: C91 C92 I11 L13 L44 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-com, nep-exp and nep-hea
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:609

DOI: 10.4419/86788706

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