Entry Deterrence in Hospital Procedure Markets: A Simple Model of Learning-By-Doing
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NBER Working Paper No. 9871
Issued in July 2003
NBER Program(s): HE
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This paper examines the strategic behavior of hospitals in one of their primary output markets: inpatient surgical procedures. High levels of learning-by-doing in surgical fields may act as a barrier to entry. I investigate whether incumbent hospitals facing prospective entry in a procedure market manipulate their procedure volumes to produce such a barrier. I derive straightforward empirical tests from a model of patient demand, procedure quality, and differentiated product competition. Using hospital data on electrophysiological studies, an invasive cardiac procedure, I find evidence of entry-deterring investment in procedure volume. These findings suggest that competitive motivations may play a role in treatment decisions.
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