QUALITY CHOICE AND MARKET STRUCTURE: A DYNAMIC ANALYSIS OF NURSING HOME OLIGOPOLIES

Haizhen Lin

International Economic Review, 2015, vol. 56, issue 4, 1261-1290

Abstract: This article develops a dynamic model of entry and exit to analyze quality choice and oligopoly market structure in the nursing home industry. I find significant heterogeneity in the competitive effects across market structures: Firms of similar quality levels compete more strongly than dissimilar firms. Sunken entry costs are extremely large, and quality adjustment behavior is governed by significant fixed adjustment costs. A proposal to eliminate low‐quality nursing homes is found to cause a large supply‐side shortage, and another proposal to lower entry costs has offered a perverse incentive to provide low quality of care.

Date: 2015
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