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Hospital systems and bargaining power: evidence from out‐of‐market acquisitions
Author(s) -
Lewis Matthew S.,
Pflum Kevin E.
Publication year - 2017
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12186
Subject(s) - competitor analysis , market power , competition (biology) , mergers and acquisitions , bargaining power , business , market share , market structure , focus (optics) , economics , monetary economics , industrial organization , market economy , microeconomics , finance , marketing , ecology , biology , monopoly , physics , optics
Analyses of hospital mergers typically focus on acquisitions that alter local market concentration. However, as prices are negotiated between hospital systems and insurers, this focus may overlook the impact of cross‐market interdependence in the bargaining outcome. Using data on out‐of‐market acquisitions occurring across the United States from 2000–2010, we investigate the impact of cross‐market dependencies on negotiated prices. We find that prices at hospitals acquired by out‐of‐market systems increase by about 17% more than unacquired, stand‐alone hospitals and confirm that out‐of‐market mergers result in a relaxation of competition, the prices of nearby competitors to acquired hospitals increase by around 8%.