Regulation and Capacity Competition in Health Care: Evidence from U.S. Dialysis Markets

Mian Dai () and Xun Tang
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Mian Dai: Drexel University
Xun Tang: Rice University

The Review of Economics and Statistics, 2015, vol. 97, issue 5, 965-982

Abstract: This paper studies entry and capacity decisions by dialysis providers in the United States. We estimate a structural model where providers make continuous strategic choices of capacity based on their private information about own costs and knowledge of the distribution of competitors’ private information. We evaluate the impact on the market structure and providers’ profits under counterfactual regulatory policies that increase the costs or reduce the payment per unit of capacity. We find that these policies reduce the market capacity as measured by the number of dialysis stations. However, the downward-sloping reaction curve shields some providers from negative profit shocks in certain markets. The paper also has a methodological contribution in that it proposes new estimators for Bayesian games with continuous actions.

Keywords: Games with Incomplete Information; Continuous Actions; U.S. Dialysis Markets (search for similar items in EconPapers)
JEL-codes: I11 L11 L13 (search for similar items in EconPapers)
Date: 2015
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