Vertical integration and exclusive vertical restraints between insurers and hospitals

Time: 2011, Tuesday April 5, 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Rudy Douven (CPB)

Discussant: Theon van Dijk (Lexonomics)

Language: English

Registration:  Please register by sending an email to seminars@cpb.nl.

Abstract subject: We employ a theoretical model of a concentrated health care market that consists of two hospitals and two health insurers that set premiums to attract consumers. We examine vertical integration and exclusive vertical restraints in healthcare markets where insurers and hospitals bilaterally bargain over contracts. Without vertical integration, exclusion only occurs if hospitals are sufficiently differentiated, whereas vertical integration always triggers exclusion of a competitor. We find that when exclusion occurs, it always has one of two possible anticompetitive effects. First, a hospital may soften insurer price-competition by excluding one insurer from the market. Second, insurers and hospitals can restrict consumer choice by contracting asymmetric provider networks. Both types raise total industry profits and lower consumer welfare.

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