Quality and welfare in a mixed duopoly with regulated prices: The case of a public and a private hospital

Annika Herr

No 7, DICE Discussion Papers from Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE)

Abstract: Hospital markets are often characterised by price regulation and the existence of different ownership types. Using a Hotelling framework, this paper analyses the effect of heterogeneous objectives of the hospitals on quality differentiation, profits, and overall welfare in a price regulated duopoly with exogenous symmetric locations. In contrast to other studies on mixed duopolies, this paper shows that in this framework privatisation of the public hospital may increase overall welfare. This holds if the public hospital is similar to the private hospital or less efficient and competition is low. The main driving force is the single regulated price which induces under-(over-)provision of quality of the more (less) efficient hospital compared to the first-best. However, if the public hospital is sufficiently more efficient and competition is fierce, a mixed duopoly outperforms both a private and a public duopoly due to an equilibrium price below (above) the price of the private (public) duopoly. This medium price discourages overprovision of quality of the less efficient hospital and - together with the non-profit objective - encourages an increase in quality of the more efficient public hospital.

Keywords: mixed oligopoly; price regulation; quality; hospital competition (search for similar items in EconPapers)
JEL-codes: H42 I18 L13 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-com, nep-ind and nep-reg
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Quality and Welfare in a Mixed Duopoly with Regulated Prices: The Case of a Public and a Private Hospital (2011)
Journal Article: Quality and Welfare in a Mixed Duopoly with Regulated Prices: The Case of a Public and a Private Hospital (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:dicedp:07

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