TITLE:
Spatial Competition between Health Care Providers: Effects of Standardization
AUTHORS:
Björn A. Kuchinke, Jürgen Zerth
KEYWORDS:
Hospital Competition, Hotelling Model, Quality Competition
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.3,
May
22,
2015
ABSTRACT: In the international health care literature the impacts of competition in
health care markets are discussed widely. But aspects of standardization in
regional health care markets with no price competition received comparatively
little attention. We use a typical Hotelling framework to analyze a regional
health care market with two health care providers competing in (vertical)
quality after the scope of medical treatment has been set (horizontal quality).
We conclude that in the basic model both health care providers will use
vertical quality to separate from each other. In the next step we introduce a
standard in vertical quality of which one health care provider—the standard profiteer—could better cope with. In the standardization
case a more homogeneous supply can be expected and there is a higher
possibility that the standard follower has to leave the regional health care
market. Therefore standardization of health care quality could strengthen
monopolistic tendencies.