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Quality Differentiation Under Mixed Competition in Hospital Markets

Modhurima Dey Amin (), Syed Badruddoza and Robert Rosenman ()
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Modhurima Dey Amin: Washington State University

Journal of Industry, Competition and Trade, 2018, vol. 18, issue 4, 473-484

Abstract: Abstract We use a Hotelling-type model of two hospitals, one for-profit (FP) and the other not-for-profit (NFP) using quality to compete for patients. In an equilibrium that constrains the NFP to zero profits, the NFP share of the market decreases as fixed costs or patient’s marginal utility of quality increase, or as transportation and marginal quality costs decrease, conditions that make quality a more effective tool for attracting patients, improving the ability of the FP to compete for market share. We show that an NFP hospital cannot take the entire market without significant fundraising ability. The market shares predicted by our model are consistent with what is presently observed in Europe and the US.

Keywords: Hospital; Not-for-profit; Mixed competition (search for similar items in EconPapers)
JEL-codes: L1 L3 I1 (search for similar items in EconPapers)
Date: 2018
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