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Publications
  • Summer 2019
  • Article
  • RAND Journal of Economics

The Price Effects of Cross-Market Mergers: Theory and Evidence from the Hospital Industry

By: Leemore S. Dafny, Katherine Ho and Robin S. Lee
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Abstract

We consider the effect of mergers between firms whose products are not viewed as direct substitutes for the same good or service but are bundled by a common intermediary. Focusing on hospital mergers across distinct geographic markets, we show that such combinations can reduce competition among merging hospitals for inclusion in insurers' networks, leading to higher prices (or lower-quality care). Using data on hospital mergers from 1996 to 2012, we find support that this mechanism operates within state boundaries: cross-market, within-state hospital mergers yield price increases of 7%–9% for acquiring hospitals, whereas out-of-state acquisitions do not yield significant increases.

Keywords

Mergers and Acquisitions; Markets; Geographic Scope; Price; Outcome or Result; Insurance; Health Industry

Citation

Dafny, Leemore S., Katherine Ho, and Robin S. Lee. "The Price Effects of Cross-Market Mergers: Theory and Evidence from the Hospital Industry." RAND Journal of Economics 50, no. 2 (Summer 2019): 286–325.
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About The Author

Leemore S. Dafny

General Management
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More from the Authors
  • Cigna-Express Scripts: Can a Vertical Merger Rescue an Industry Under Attack? By: Leemore Dafny
  • Giving a Buck or Making a Buck? Donations by Pharmaceutical Manufacturers to Independent Patient Assistance Charities By: Leemore Dafny, Christopher Ody and Teresa Rokos
  • Two Approaches to Capping Health Care Prices By: Michael E. Chernew, Maximilian J. Pany and Leemore S. Dafny
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