NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Entry and Competition in Local Hospital Markets

Jean M. Abraham, Martin S. Gaynor, William B. Vogt

NBER Working Paper No. 11649
Issued in October 2005
NBER Program(s):   HC   IO

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 competition in local markets for hospital services. We examine the effect of market structure on competition in local hospital markets -- specifically, does the hardness of 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 U.S. hospital industry. In the hospital markets we examine, entry leads to a quick convergence to competitive conduct. Entry reduces variable profits and increases quantity. Most of the effects of entry come from having a second and a third firm enter the market. The fourth entrant has little estimated effect. The use of quantity information allows us to infer that entry is consumer-surplus-increasing.

download in pdf format
   (425 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (425 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w11649

Published: Abraham, Jean Marie, Martin Gaynor, and William B. Vogt. "Entry and Competition in Local Hospital Markets." Journal of Industrial Economics 55, 2 (June 2007): 265-88.

Users who downloaded this paper also downloaded these:
Gaynor and Vogt w9471 Competition Among Hospitals
Gaynor w12301 What Do We Know About Competition and Quality in Health Care Markets?
Gaynor and Town w17208 Competition in Health Care Markets
Gaynor, Kleiner, and Vogt w16656 A Structural Approach to Market Definition With an Application to the Hospital Industry
Dafny w9871 Entry Deterrence in Hospital Procedure Markets: A Simple Model of Learning-By-Doing
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us