Games Hospitals Play: Entry Deterrence in Hospital Procedure Markets

Leemore Dafny

85 citations0/0 files storedJournal of Economics & Management Strategy

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Abstract

Strategic investment models, though popular in the theoretical literature, have rarely been tested empirically. This paper develops a model of strategic investment in inpatient procedure markets, which are well‐suited to empirical tests of this behavior. Potential entrants are easy to identify in such markets, enabling the researcher to accurately estimate the entry threat faced by different incumbents. I derive straightforward empirical tests of entry deterrence from a model of patient demand, procedure quality, and differentiated product competition. Using hospital data on electrophysiological studies, an invasive cardiac procedure, I find evidence of entry‐deterring investment. These findings suggest that competitive motivations play a role in treatment decisions.

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References

1980The Role of Investment in Entry-Deterrence 1977Entry, Capacity, Investment and Oligopolistic Pricing 1979A Model of Duopoly Suggesting a Theory of Entry Barriers 1978A MODEL OF DUOPOLY SUGGESTING A THEORY OF ENTRY BARRIERS 1987The volume-outcome relationship: practice-makes-perfect or selective-referral patterns?1995Capital Structure and Product-Market Competition: Empirical Evidence from the Supermarket Industry 2006The Firm Specificity of Individual Performance: Evidence from Cardiac Surgery 1979Investment Strategy and Growth in a New Market

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2011Competition in Health Care Markets11We wish to thank participants at the Handbook of Health Economics meeting in Lisbon, Portugal, Pedro Pita Barros, Rein Halbersman, and Cory Capps for helpful comments and suggestions. Misja Mikkers, Rein Halbersma, and Ramsis Croes of the Netherlands Healthcare Authority graciously provided data on hospital and insurance market structure in the Netherlands. David Emmons kindly provided aggregates of the American Medical Association's calculations of health insurance market structure. Leemore Dafny was kind enough to share her measures of market concentration for the large employer segment of the US health insurance market. All opinions expressed here and any errors are the sole responsibility of the authors. No endorsement or approval by any other individuals or institutions is implied or should be inferred.2011Fighting City Hall: Entry Deterrence and Technology Upgrades in Cable TV Markets

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