TY  - JOUR
AU  - Gaynor,Martin
AU  - Kleiner,Samuel A.
AU  - Vogt,William B.
TI  - A Structural Approach to Market Definition With an Application to the Hospital Industry
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16656
PY  - 2011
Y2  - January 2011
UR  - http://www.nber.org/papers/w16656
L1  - http://www.nber.org/papers/w16656.pdf
N1  - Author contact info:
Martin Gaynor
Heinz College
Carnegie Mellon University
4800 Forbes Avenue, Room 3008
Pittsburgh, PA 15213-3890
Tel: 412/268-7933
Fax: 412/268-5338
E-Mail: mgaynor@cmu.edu

Samuel Kleiner
Cornell University
College of Human Ecology
108 Martha Van Rensselaer Hall
Ithaca, NY 14853
Tel: 607/255-1027
Fax: 607/255-4071
E-Mail: skleiner@cornell.edu

William B. Vogt
513 Brooks Hall
Department of Economics
Terry College of Business
University of Georgia
Athens, GA  30602
Tel: 706-542-3970
Fax: 706-542-3376
E-Mail: william.b.vogt@gmail.com
AB  - Market definition is essential to merger analysis. Because no standard approach to market definition exists, opposing parties in antitrust cases often disagree about the extent of the market. These differences have been particularly relevant in the hospital industry, where the courts have denied seven of eight merger challenges since 1994, due largely to disagreements over geographic market definition. We compare geographic markets produced using common ad hoc methodologies to a method that directly applies the “SSNIP test” to hospitals in California using a structural model. Our results suggest that previously employed methods overstate hospital demand elasticities by a factor of 2.4 to 3.4 and define larger markets than would be implied by the merger guidelines’s hypothetical monopolist test. The use of these methods in differentiated product industries may lead to mistaken geographic market delineation, and was likely a contributing factor to the permissive legal environment for hospital mergers.
ER  -