Hospital Competition and Quality with Regulated Prices

Abstract

We analyse the effect of competition on quality in hospital markets with regulated prices, considering the effect of both introducing competition (monopoly versus competition) and increasing competition through either lower transportation costs (increased substitutability) or a higher number of hospitals. With semi-altruistic providers and a fairly general cost structure, we show that the relationship between competition and quality is generally ambiguous. In contrast to the received body of theoretical literature, this is consistent with, and potentially explains, the mixed empirical evidence. © The editors of the Scandinavian Journal of Economics 2011.