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Hospital competition when patients learn through experience

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  • Sá, Luís
  • Straume, Odd Rune

Abstract

We study competing hospitals’ incentives for quality provision in a dynamic setting where healthcare is an experience good. In our model, the utility a patient derives from choosing a particular provider depends on a subjective component specific to the match between the patient and the provider, which can only be learned through experience. We find that the experience-good nature of healthcare can either reinforce or dampen the demand responsiveness to quality and the hospitals’ incentives for quality provision, depending on two key factors: the shape of the distribution of match-specific utilities and the cost relationship between quality provision and treatment volume. We establish conditions under which ignoring the experience dimension of healthcare leads to inaccurate assessments of the competitiveness of hospital markets.

Suggested Citation

  • Sá, Luís & Straume, Odd Rune, 2024. "Hospital competition when patients learn through experience," Journal of Health Economics, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:jhecon:v:97:y:2024:i:c:s0167629624000651
    DOI: 10.1016/j.jhealeco.2024.102920
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    More about this item

    Keywords

    Hospital competition; Experience goods; Patient experience; Learning-by-doing; Quality;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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