Vertical Integration and Exclusive Behavior of Insurers and Hospitals

25 Pages Posted: 5 Apr 2014

See all articles by Rudy Douven

Rudy Douven

CPB Netherlands Bureau for Economic Policy Analysis; CPB Netherlands Bureau for Economic Policy Analysis

Rein Halbersma

Dutch Healthcare Authority; Tilburg Law and Economics Center (TILEC)

Katalin Katona

Dutch Healthcare Authority; Tilburg Law and Economics Center (TILEC)

Victoria Shestalova

Netherlands Bureau for Economic Policy Analysis

Date Written: Summer 2014

Abstract

We examine vertical integration and exclusive behavior in health care markets in which insurers and hospitals bilaterally bargain over contracts. We employ a bargaining model of two hospitals and two health insurers competing on premiums. We show that asymmetric equilibria exist in which one insurer contracts one hospital whereas the other insurer contracts both hospitals, even if all players are equally efficient in their production. Asymmetric equilibria arise if hospitals are sufficiently differentiated. In these cases, total industry profits increase and consumer welfare decreases in comparison to the case in which both insurers have contracts with both hospitals. Vertical integration makes these equilibria possible for a wider range of parameters.

Suggested Citation

Douven, Rudy and Halbersma, Rein and Katona, Katalin and Shestalova, Victoria, Vertical Integration and Exclusive Behavior of Insurers and Hospitals (Summer 2014). Journal of Economics & Management Strategy, Vol. 23, Issue 2, pp. 344-368, 2014, Available at SSRN: https://ssrn.com/abstract=2420642 or http://dx.doi.org/10.1111/jems.12056

Rudy Douven (Contact Author)

CPB Netherlands Bureau for Economic Policy Analysis ( email )

P.O. Box 80510
The Hague, 2508 GM
Netherlands

HOME PAGE: http://www.cpb.nl/nl/org/homepages/rcmhd/

CPB Netherlands Bureau for Economic Policy Analysis ( email )

P.O. Box 80510
The Hague, 2508 GM
Netherlands

HOME PAGE: http://www.cpb.nl/nl/org/homepages/rcmhd/

Rein Halbersma

Dutch Healthcare Authority ( email )

Postbus 3017
Utrecht, 3502 GA
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Katalin Katona

Dutch Healthcare Authority ( email )

Postbus 3017
Utrecht, 3502 GA
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Victoria Shestalova

Netherlands Bureau for Economic Policy Analysis ( email )

2508 GM The Hague
Netherlands

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