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Simulating Hospital Merger Simulations

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  • David J. Balan
  • Keith Brand

Abstract

We perform a Monte Carlo experiment to assess the performance of three hospital merger simulation methods. Our analysis proceeds as follows: (i) specify a theoretical model of hospital markets and use it to generate “true” price effects for many simulated mergers; (ii) for each simulated merger, generate data of the kind commonly available in real‐world merger analysis and apply the simulation methods to those data; and (iii) compare the predictions of the simulation methods to the true price effects. All three simulation methods perform reasonably well. We also develop a method for predicting price effects that extends Garmon [2017].

Suggested Citation

  • David J. Balan & Keith Brand, 2023. "Simulating Hospital Merger Simulations," Journal of Industrial Economics, Wiley Blackwell, vol. 71(1), pages 47-123, March.
    • Handle: RePEc:bla:jindec:v:71:y:2023:i:1:p:47-123
    DOI: 10.1111/joie.12312
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    References listed on IDEAS

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    1. Kate Ho & Robin S. Lee, 2019. "Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets," American Economic Review, American Economic Association, vol. 109(2), pages 473-522, February.
    2. Gautam Gowrisankaran & Aviv Nevo & Robert Town, 2015. "Mergers When Prices Are Negotiated: Evidence from the Hospital Industry," American Economic Review, American Economic Association, vol. 105(1), pages 172-203, January.
    3. Miller, Nathan H. & Remer, Marc & Ryan, Conor & Sheu, Gloria, 2017. "Upward pricing pressure as a predictor of merger price effects," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 216-247.
    4. Matthew S. Lewis & Kevin E. Pflum, 2017. "Hospital systems and bargaining power: evidence from out-of-market acquisitions," RAND Journal of Economics, RAND Corporation, vol. 48(3), pages 579-610, August.
    5. Craig T. Peters, 2014. "Bargaining Power and the Effects of Joint Negotiation: The “Recapture Effect”," EAG Discussions Papers 201403, Department of Justice, Antitrust Division.
    6. Joseph Farrell & David Balan & Keith Brand & Brett Wendling, 2011. "Economics at the FTC: Hospital Mergers, Authorized Generic Drugs, and Consumer Credit Markets," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 39(4), pages 271-296, December.
    7. Orley Ashenfelter & Daniel Hosken, 2010. "The Effect of Mergers on Consumer Prices: Evidence from Five Mergers on the Enforcement Margin," Journal of Law and Economics, University of Chicago Press, vol. 53(3), pages 417-466.
    8. Katz Michael L, 2011. "Insurance, Consumer Choice, and the Equilibrium Price and Quality of Hospital Care," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(2), pages 1-44, January.
    9. Christopher Garmon, 2017. "The accuracy of hospital merger screening methods," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 1068-1102, December.
    10. Matthew S. Lewis & Kevin E. Pflum, 2015. "Diagnosing Hospital System Bargaining Power in Managed Care Networks," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 243-274, February.
    11. Devesh Raval & Ted Rosenbaum & Steven A. Tenn, 2017. "A Semiparametric Discrete Choice Model: An Application To Hospital Mergers," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1919-1944, October.
    12. Peters, Craig, 2006. "Evaluating the Performance of Merger Simulation: Evidence from the U.S. Airline Industry," Journal of Law and Economics, University of Chicago Press, vol. 49(2), pages 627-649, October.
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    Cited by:

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