Entry and Competition in Local Hospital Markets

Jean Marie Abraham, Martin Gaynor and William Vogt ()

The Centre for Market and Public Organisation from The Centre for Market and Public Organisation, University of Bristol, UK

Abstract: There has been considerable consolidation in the hospital industry in recent years. Over 900 deals occurred from 1994-2000, and many local markets, even in large urban areas, have been reduced to monopolies, duopolies or triopolies. This surge in consolidation has led to concern about its effect on competition in local markets for hospital services. In this paper we examine the impact of market structure on competition in local hospital markets – specifically, does competition increase with the number of firms? We extend the entry model developed by Bresnahan and Reiss to make use of quantity information and apply it to data on the US hospital industry. The results from the estimation are striking. In the hospital markets we examine, entry leads to markets quickly becoming competitive. Entry reduces variable profits and increases quality. Indeed, most of the effects of entry come from having a second and possibly a third firm enter the market. The use of quantity information allows us to infer that entry is welfare increasing.

Keywords: analysis; of; health; care; markets (search for similar items in EconPapers)
JEL-codes: I11 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2003-05
New Economics Papers: this item is included in nep-com, nep-ent, nep-hea, nep-ind, nep-mfd and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Related works:
Journal Article: ENTRY AND COMPETITION IN LOCAL HOSPITAL MARKETS* (2007)
Working Paper: Entry and Competition in Local Hospital Markets (2005)
Working Paper: Entry and Competition in Local Hospital Markets (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:bri:cmpowp:03/088

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