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NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Price Effects of Cross-Market Hospital Mergers

Leemore Dafny, Kate Ho, Robin S. Lee

NBER Working Paper No. 22106
Issued in March 2016, Revised in October 2018
NBER Program(s):The Health Care Program, The Industrial Organization Program

We consider the effect of mergers between firms whose products are not viewed as direct substitutes for the same good or service, but are bundled by a common intermediary. Focusing on hospital mergers across distinct geographic markets, we show that such combinations can reduce competition among merging hospitals for inclusion in insurers' networks, leading to higher prices (or lower-quality care). Using data on hospital mergers from 1996-2012, we find support that this mechanism operates within state boundaries: cross-market, within-state hospital mergers yield price increases of 7-9 percent for acquiring hospitals, whereas out of state acquisitions do not yield significant increases.

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Document Object Identifier (DOI): 10.3386/w22106

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