Oligopolistic competition for the provision of hospital care

Competition in the market for health care has followed different patterns, and some health care systems have opted for mixed markets where public organisations compete alongside private ones. Empirical evidences on these market structures are however mixed. In this article we argue that public hospitals which have different objectives than private ones and faces different constraints, are also perceived differently by patients. For this reason we model the market for hospital care as Salop circle with a centre where the public hospital is located; private providers are located on the circle. We show that, depending on the difference in the productivity advantage, mixed markets may outperform both the benchmark (one public hospital at the centre) and private competition (N private providers competing along the circle), but the welfare distribution of these improvements should be carefully analysed. In some cases monopoly franchise on the mixed market should be introduced to redistribute these benefits.