Working Paper: NBER ID: w27005
Authors: Eric Barrette; Gautam Gowrisankaran; Robert Town
Abstract: While economic theories indicate that market power by downstream firms can potentially counteract market power upstream, antitrust policy is opaque about whether to incorporate countervailing market power in merger analyses. We use detailed national claims data from the healthcare sector to evaluate whether countervailing insurer power does indeed limit hospitals’ exercise of market power. We estimate willingness-to-pay models to evaluate hospital market power across analysis areas. We find that countervailing market power is important: a typical hospital merger would raise hospital prices 4.3% at the 25th percentile of insurer concentration but only 0.97% at the 75th percentile of insurer concentration.
Keywords: hospital competition; market power; countervailing power; insurer concentration
JEL Codes: I11; I18; L11; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Willingness to Pay Per Person (WTPPP) (Q26) | Hospital Prices (P22) |
| Insurer Concentration (HHI) (G52) | Effect of Hospital Bargaining Leverage on Prices (L11) |
| Hospital Mergers (G34) | Mean Hospital Prices (I11) |