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Entry decisions and asymmetric competition between non-profit and for-profit homes in the long-term care market

Iris Grant, Iris Kesternich () and Johannes Van Biesebroeck ()

No 14005, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The demand for long-term care (LTC) services is growing strongly, mostly due to population aging. Historically, the German LTC market was dominated by non-profit nursing homes, but the recent entry wave was tilted towards for-profit competitors. Using a rich administrative dataset on all LTC facilities in Germany, we examine strategic interaction between these two ownership types in a static entry model. The estimates of competitive effects imply that non-profit and for-profit homes are substitutes, but competition is much stronger within-type, suggesting that they provide differentiated products. For-profit homes in particular act as if they operate in a different market segment, but over time their entry behavior has converged to that of the more established non-profits. Counterfactual simulations of proposed changes in government policy suggest that even small changes favoring either type could have a large impact on the fraction of markets that remain unserved or only served by a single type.

Keywords: Competition; For-profit; Long-term care; non-profit (search for similar items in EconPapers)
JEL-codes: I11 L13 L22 L33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age, nep-com, nep-hea and nep-ind
Date: 2019-09
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