Countervailing Market Power and Hospital Competition

Eric Barrette, Gautam Gowrisankaran and Robert Town
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Eric Barrette: Medtronic
Gautam Gowrisankaran: Columbia University, CEPR, and NBER
Robert Town: University of Texas and NBER

The Review of Economics and Statistics, 2022, vol. 104, issue 6, 1351-1360

Abstract: While economic theories indicate that market power by downstream firms can potentially counteract market power upstream, antitrust policy is opaque as to whether to incorporate countervailing market power in merger analyses. We use detailed national claims data from the health care sector to evaluate whether countervailing insurer power does indeed limit hospitals' exercise of market power. We estimate willingness-to-pay models to evaluate hospital market power across analysis areas. We find that countervailing market power is important: a typical hospital merger would raise hospital prices 4.3% at the 25th percentile of insurer concentration but only 0.97% at the 75th percentile of insurer concentration.

Date: 2022
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