Competition among hospitals

Rand J Econ. 2003 Winter;34(4):764-85.


We examine competition in the hospital industry, in particular the effect of ownership type (for-profit, not-for-profit, government). We estimate a structural model of demand and pricing in the hospital industry in California, then use the estimates to simulate the effect of a merger. California hospitals in 1995 face an average price elasticity of demand of -4.85. Not-for-profit hospitals face less elastic demand and act as if they have lower marginal costs. Their prices are lower than those of for-profits, but markups are higher. We simulate the effects of the 1997 merger of two hospital chains. In San Luis Obispo County, where the merger creates a near monopoly, prices rise by up to 53%, and the predicted price increase would not be substantially smaller were the chains not-for-profit.

MeSH terms

  • California
  • Economic Competition* / statistics & numerical data
  • Health Care Costs
  • Health Facility Merger*
  • Health Services Needs and Demand
  • Hospital Administration* / statistics & numerical data
  • Humans
  • Models, Econometric
  • Models, Organizational
  • Ownership
  • United States