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Is local competition effective in improving quality and efficiency of hospitals? Insights from an asymmetric spatial competition model

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  • Guccio, Calogero
  • Lisi, Domenico
  • Martorana, Marco Ferdinando
  • Pignataro, Giacomo

Abstract

A critical aspect of healthcare reforms in various countries revolves around the relationship between efficiency, quality, and competition. Exploring the spatial dimension of competition is essential to understand this connection thoroughly. In this study, we develop a theoretical model that examines hospitals' choices regarding quality and cost-containment efforts across different competitive environments characterized by varying spatial distributions of hospitals. We derive and fully characterize hospitals' reaction functions and Nash equilibria concerning quality and cost-containment efforts. Our findings reveal that while localized competition tends to reduce hospitals' efforts in cost containment, its impact on treatment quality can vary. This variation depends on factors such as the cost of delivering quality care, its benefits to patients, and hospitals' objectives, including their level of altruism. Our findings contribute to the ongoing debate on the role of local competition in healthcare. They offer insights into the conditions that could yield divergent outcomes, often advocated by conflicting perspectives. These conditions serve as a foundation for refining competition policy models in healthcare.

Suggested Citation

  • Guccio, Calogero & Lisi, Domenico & Martorana, Marco Ferdinando & Pignataro, Giacomo, 2024. "Is local competition effective in improving quality and efficiency of hospitals? Insights from an asymmetric spatial competition model," Research in Economics, Elsevier, vol. 78(3).
    • Handle: RePEc:eee:reecon:v:78:y:2024:i:3:s1090944324000267
    DOI: 10.1016/j.rie.2024.100962
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    Keywords

    Healthcare policy modelling; Hospitals; Local competition; Spatial characterization; Cost efficiency; Healthcare 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
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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