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Mergers and marginal costs: New evidence on hospital buyer power
Author(s) -
Craig Stuart V.,
Grennan Matthew,
Swanson Ashley
Publication year - 2021
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 - 10.1111/1756-2171.12365
Subject(s) - offset (computer science) , marginal cost , sample (material) , gini coefficient , economics , microeconomics , market power , business , medical expenses , econometrics , industrial organization , computer science , inequality , medicine , mathematical analysis , emergency medicine , chemistry , mathematics , chromatography , economic inequality , monopoly , programming language
We estimate the effects of hospital mergers, using detailed data containing medical supply transactions (representing 23% of operating costs) from a sample of US hospitals, 2009–2015. Pre‐merger price variation across hospitals (Gini coefficient 7%) suggests significant opportunities for cost decreases. However, we observe limited evidence of actual savings. In this retrospective study, targets realized 1.9% savings; acquirers realized no significant savings. Examining treatment effect heterogeneity to shed light on theories of “buyer power,” we find that savings, when they occur, tend to be local, and potential benefits of savings may be offset by managerial costs of merging.