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Quality Competition, Insurance, and Consumer Choice in Health Care Markets
Author(s) -
Lyon Thomas P.
Publication year - 1999
Publication title -
journal of economics and management strategy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 68
eISSN - 1530-9134
pISSN - 1058-6407
DOI - 10.1111/j.1430-9134.1999.00546.x
Subject(s) - tacit collusion , consumer choice , business , incentive , competition (biology) , market share , quality (philosophy) , managed care , collusion , health care , actuarial science , marketing , microeconomics , industrial organization , economics , ecology , philosophy , epistemology , economic growth , biology
In this model, insurance offering a choice of hospitals is valued because consumers are uncertain which hospital they will prefer ex post. A competitive insurance market facilitates tacit price collusion between hospitals; high margins induce hospitals to compete for customers through overinvestment in quality. Incentives may exist to lock in market share via managed‐care plans with less choice and lower prices. As technology becomes more expensive, the market increasingly offers too little choice. A pure managed care market may emerge, with underinvestment in quality. Relative to a pure insurance regime, however, all consumers are better off under managed care.