THE EFFECT OF CLOSURE ON QUALITY: THE CASE OF RURAL NURSING HOMES

John Bowblis and Andrew Vassallo

Journal of Competition Law and Economics, 2014, vol. 10, issue 4, 909-931

Abstract: Understanding the role of competition in determining prices and quality is important in evaluating various public policies, including any antitrust investigation of a proposed merger. This is especially true in health-care markets where consumers are less informed than providers and standard mechanisms such as warranties cannot protect consumers against inferior products. This article examines how market structure affects the quality of care provided in a health-care market by examining the nursing home industry. We empirically test if quality is affected by a change in market structure that arises when a competitor exits the market. Using a sample of rural nursing homes that have a competitor exit and also experience no entry from new competitors, the effect of market structure is identified using a difference-in-differences approach that compares facilities that are within the same geographic market as the exiting facility to a group of facilities outside that geographic market. We find that total staffing levels are lower after the closure after adjusting for transitory effects. All non-staffing quality measures show improvement after the closure, although not all are found to be statistically significant. This suggests supracompetitive markets with excess capacity may actually have lower levels of quality than more concentrated markets.

JEL-codes: I11 K21 L20 L22 L40 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jcomle:v:10:y:2014:i:4:p:909-931.

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Journal of Competition Law and Economics is currently edited by Nicholas Economides, Amelia Fletcher, Michal Gal, Damien Geradin, Ioannis Lianos and Tommaso Valletti

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