Working Paper: CEPR ID: DP14005
Authors: Iris Grant; Iris Kesternich; Johannes Van Biesebroeck
Abstract: Mostly due to population aging, the demand for long-term care (LTC) services is growing strongly. Historically, non-profit nursing homes dominated the German LTC market, but the recent entry wave was tilted towards for-profit competitors. Using a rich administrative dataset on all LTC facilities in Germany, we examine strategic interaction between these two ownership types in a static entry model. The estimates of competitive effects imply that non-profit and for-profit homes are substitutes, but competition is much stronger within-type, suggesting that they provide differentiated products. For-profit homes in particular act as if they operate in a different market segment, but over time their entry behavior has converged to that of the more established non-profits. Counterfactual simulations of proposed changes in government policy suggest a large impact on the fraction of markets that remain unserved or only served by a single type.
Keywords: competition; long-term care; nonprofit; for-profit
JEL Codes: I11; L13; L22; L33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Entry of nonprofit homes (L39) | Deterrent effect on entry of other nonprofit homes (L39) |
| Entry of for-profit homes (R21) | Deterrent effect on entry of other for-profit homes (R21) |
| Entry of nonprofit homes (L39) | Deterrent effect on entry of for-profit homes (R21) |
| Entry of for-profit homes (R21) | Deterrent effect on entry of nonprofit homes (R21) |
| Presence of own-type competitors (L19) | Stronger negative impact on profits (F69) |
| Presence of other-type competitors (L19) | Weaker negative impact on profits (F69) |
| Government policy changes (O24) | Impact on fraction of markets served (F61) |
| Entry behavior of for-profits (M13) | Convergence to established nonprofits (L31) |