Generalized Insurer Bargaining

55 Pages Posted: 23 Oct 2015 Last revised: 22 Jul 2017

See all articles by Guy Arie

Guy Arie

University of Rochester - Simon Business School

Paul L.E. Grieco

Pennsylvania State University - Department of Economics

Shiran Rachmilevitch

University of Haifa

Date Written: July 20, 2017

Abstract

Intermediaries may bargain with several upstream providers on behalf of consumers who do not directly pay for consumption, such as an insurer bargaining with hospitals. We show that the common Nash- in-Nash solution, while useful for estimation, can predict Nash overpricing: prices that exceed the treatment’s value. We develop an alternative model based on repeated interaction. When used for estimation, our model maintains the attractive features of the Nash-in-Nash and includes it as a special case. The two models differ in important ways. In particular, mergers that would be approved using Nash-in-Nash may be rejected using the general model.

Keywords: bargaining; health economics; insensitivity to prices; health insurance; hospital prices

JEL Classification: L13, L14, I11, L40

Suggested Citation

Arie, Guy and Grieco, Paul L.E. and Rachmilevitch, Shiran, Generalized Insurer Bargaining (July 20, 2017). Simon Business School Working Paper No. FR 15-30, Available at SSRN: https://ssrn.com/abstract=2677394 or http://dx.doi.org/10.2139/ssrn.2677394

Guy Arie (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Paul L.E. Grieco

Pennsylvania State University - Department of Economics ( email )

University Park
State College, PA 16802
United States

Shiran Rachmilevitch

University of Haifa ( email )

Mount Carmel
Haifa, 31905
Israel

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