Quality provision in hospital markets with demand inertia:The role of patient expectations

Luís Sá and Odd Rune Straume

No 03/2020, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: The presence of switching costs and persistent patient preferences generates demand inertia and links current and future choices of hospital. Using a model of hospital competition with demand inertia, we investigate the effect of patient expectations (whether and how patients anticipate the future) on quality provision. We consider three types of expectations. Myopic patients choose a hospital based on current variables alone, forward-looking but naïve patients take the future into account but assume that quality remains constant, and forward-looking and rational patients foresee the evolution of quality. We rank equilibrium quality provision and show that it is higher under naïve than myopic expectations, while equilibrium quality under rational expectations may be highest or lowest. This result also holds for patient welfare, suggesting that rationality does not always benefit patients. We also show that only under rational expectations may quality be lower than in a market without inertia and switching cost reductions beneficial.

Keywords: Hospital competition; myopic behaviour; forward-looking behaviour; rational expectations; switching costs. (search for similar items in EconPapers)
JEL-codes: I11 I18 L13 L51 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-com, nep-hea, nep-ind and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Quality provision in hospital markets with demand inertia: The role of patient expectations (2021)
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