Countervailing Market Power and Hospital Competition

Eric Barrette, Gautam Gowrisankaran, Robert Town

NBER Working Paper No. 27005
Issued in April 2020
NBER Program(s):Health Care, Industrial Organization

While economic theories indicate that monopsony power by downstream firms can potentially counteract market power upstream, antitrust policy is opaque about whether to incorporate countervailing market power in merger analyses. We use detailed national claims data from the healthcare sector to evaluate whether insurer monopsony power does indeed limit hospitals' exercise of market power. We estimate willingness-to-pay models to evaluate hospital market power across analysis areas. We find that countervailing market power is important: a typical hospital merger would raise hospital prices 4.3% at the 25th percentile of insurer concentration but only 0.97% at the 75th percentile of insurer concentration.

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Document Object Identifier (DOI): 10.3386/w27005