TEL  Vol.5 No.3 , June 2015
Spatial Competition between Health Care Providers: Effects of Standardization
Abstract: In the international health care literature the impacts of competition in health care markets are discussed widely. But aspects of standardization in regional health care markets with no price competition received comparatively little attention. We use a typical Hotelling framework to analyze a regional health care market with two health care providers competing in (vertical) quality after the scope of medical treatment has been set (horizontal quality). We conclude that in the basic model both health care providers will use vertical quality to separate from each other. In the next step we introduce a standard in vertical quality of which one health care provider—the standard profiteer—could better cope with. In the standardization case a more homogeneous supply can be expected and there is a higher possibility that the standard follower has to leave the regional health care market. Therefore standardization of health care quality could strengthen monopolistic tendencies.
Cite this paper: Kuchinke, B. and Zerth, J. (2015) Spatial Competition between Health Care Providers: Effects of Standardization. Theoretical Economics Letters, 5, 375-388. doi: 10.4236/tel.2015.53043.

[1]   Dranove, D. and Satterthwaite, M. (2000) The Industrial Organization of Health Care Markets. Handbook of Health Economics, 1, 1093-1139.

[2]   Gaynor, M. and Vogt, W. (2000) Antitrust and Competition in Health Care Markets. Handbook of Health Economics, 1B, 1405-1487.

[3]   Gal-Or, E. (1999) The Profitablility of Vertical Mergers between Hospitals and Physician Practices. Journal of Health Economics, 18, 623-654.

[4]   Gaynor, M. and Haas-Wilson, D. (1998) Change, Consolation, and Competition in Health Care Markets. NBER Working Paper, 6701.

[5]   Pauly, M. (1998) Managed Care, Market Power and Monopsony. Health Services Research, 33, 1439-1460.

[6]   Weitz, J., Koch, M., Friess, H. and Büchler, M. (2004) Impact of Volume and Specialization for Cancer Surgery. Digestive Surgery, 21, 253-261.

[7]   Brekke, K.R., Nuscheler, R. and Straume, O.R. (2006) Quality and Location Choices under Price Regulation. Journal of Economics and Management Strategy, 15, 207-227.

[8]   Shy, O. (1995) Industrial Organization. Theory and Applications. MIT Press, Cambridge.

[9]   Glazer, J. and McGuire, T. (1993) Should Physicians be Permitted to “Balance Bill” Patients? Journal of Health Economics, 11, 239-258.

[10]   Montefiori, M. (2005) Spatial Competition for Quality in the Market for Hospital Care. European Journal of Health Economics, 6, 131-135.

[11]   Brekke, K.R., Siciliani, L. and Straume, O.R. (2013) Hospitals Mergers: A Spatial Competition Approach. Institutt for Samfunnsokonomi, Department of Economics, Discussion Paper SAM 8.

[12]   Gravelle, H. (1999) Capitation Contracts: Access and Quality. Journal of Health Economics, 18, 315-340.

[13]   Calem, P. and Rizzo, J. (2006) Competition and Specialization in the Hospital Industry: An Application of Hotelling’s Location Model. Southern Economic Journal, 62, 1182-1198.

[14]   Hotelling, H. (1929) Stability in Competition. The Economic Journal, 39, 41-57.

[15]   Robinson, J.C. and Casalino, L.P. (1996) Vertical Integration and Organizational Networks in Health Care. Health Affairs, 15, 7-22.

[16]   Tirole, J. (1988) The Theory of Industrial Organization. MIT Press, Cambridge.

[17]   Pfahler, W. and Wiese, H. (2006) Unternehmensstrategien im Wettbewerb. Einespieltheoretische Analyse, Heidelberg.

[18]   Newhouse, J. (1996) Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection. Journal of Economic Literature, 24, 1236-1263.

[19]   Pope, G.C. (1989) Hospital Nonprice Competition and Medicare Reimburesment. Journal of Health Economics, 8, 147-172.