Quality competition and hospital mergers—An experiment

Johann Han, Nadja Kairies‐Schwarz and Markus Vomhof

Health Economics, 2017, vol. 26, issue S3, 36-51

Abstract: On the basis of a Salop model with regulated prices, we investigate quality provision behaviour of competing hospitals before and after a merger. For this, we use a controlled laboratory experiment where subjects decided on the level of treatment quality as head of a hospital. We find that the post‐merger average quality is significantly lower than the average pre‐merger quality. However, for merger insiders and outsiders, average quality choices are significantly higher than predicted for pure profit‐maximising hospitals. This upward deviation is potentially driven by altruistic behaviour towards patients. Furthermore, we find that in the case where sufficient cost synergies are realised by the merged hospitals, there is a significant increase in average quality choices compared to the scenario without synergies. Finally, we find that our results do not change when comparing individual decisions to team decisions.

Date: 2017
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https://doi.org/10.1002/hec.3574

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Persistent link: https://EconPapers.repec.org/RePEc:wly:hlthec:v:26:y:2017:i:s3:p:36-51

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