Horizontal Integration
The goal for today’s class is to understand the literature on hospital pricing and different ways to estimate the effects of competition on prices. We’ll focus our discussion on the following topics and papers.
Pricing in ‘Structure-Conduct-Performance’ Studies
Much of the early work in empirical IO can be classified as “structure-conduct-performance” studies. Such studies typically consider a summary measure of market structure (like HHI) and then estimate a relationship between that measure and prices. The literature has since moved beyond these types of studies, as discussed in Miller et al. (2022), but we need to know this literature exists before we move on. We’ll discuss Kessler and McClellan (2000) as an example of this type of work in healthcare, and we’ll dicuss Miller et al. (2022) as a general critique of the “structure-conduct-performance” approach.
Effects of Mergers and Closures
Rather than attempting to measure competition, we can simply identify markets exposed to changes in competitiveness (e.g., mergers or closures) and try to estimate the effects of such changes. We’ll discuss Dafny (2009) as an example of this line of work.
Pricing and Bargaining
There are several papers that collectively develop structural models of bargaining that have become the standard in the literature at this point. We’ll focus on Gowrisankaran, Nevo, and Town (2015) as an example of this type of work. We’ve already covered Ho and Lee (2017) in our discussion of inusrance markets, which extends Gowrisankaran, Nevo, and Town (2015) to include bargaining between employers and insurers. We’ll also discuss Clemens and Gottlieb (2017), which doesn’t estimate a bargaining model but has implications for the potential role of bargaining to drive prices relative to other forces.