| Over the past two decades the hospital industry has been experiencing extensive consolidation, especially during the second half of the 1990s. Approximately 1,000 mergers occurred between 1986 and 2000, and the number of general hospitals dropped from 6,035 in 1980 to 4,862 in 2000. At the same time, the number of private specialty hospitals has tripled from the 29 that existed in 1990. The wave of hospital consolidations, hospital closures, and the surge of specialty hospitals have altered the local market structure and the pattern of competition for hospital services, which has led to concern about competition within the industry.; Analysis of entry and competition for medical service has proven difficult because hospital markets are characterized by heterogeneous products, asymmetric information, extensive government regulation, and the presence of nonprofit firms. Unlike most previous studies that analyze hospitals as a single product firm and define a single geographic market for each hospital, I examine forty-six different services provided by hospitals and assign different geographic markets to each of these special services based on the proportion of hospitals that provide them. Using hospital data from the Hospital Blue Book, I estimate an ordered probit model and find that entry of another hospital into a new area of service generally leads to a significant increase in competition; however, the competitive equilibrium is not reached for some services even after the third or fourth entry. In addition, I also find substantial economies of scale in providing most of the hospital services.; The evidence presented in my dissertation indicates that applying antitrust policy to control health care expenditures could be a double-edged sword. Encouraging consolidations would facilitate hospitals to explore the substantial economies of scale but to gain market power; discouraging consolidations would reduce firms' economic efficiency and market power as well.; Keywords. Hospital Service, Strategic Deterrence, Ordered Probit, Geographic Market, Competitive Equilibrium. |
