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The Silent Majority Fallacy of the Elzinga-Hogarty Criteria: A Critique and New Approach to Analyzing Hospital Mergers

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  • Cory S. Capps
  • David Dranove
  • Shane Greenstein
  • Mark Satterthwaite

Abstract

Elzinga/Hogarty inflow/outflow analysis is a mainstay of geographic market definition in antitrust analysis. For example, U.S. antitrust agencies lost several hospital merger challenges when evidence showed that a nontrivial fraction of local patients traveled outside the local community for care. We show that the existence of traveling consumers may not limit seller market power with respect to non-traveling consumers--a phenomenon we label the silent majority fallacy. We estimate a random coefficients logit model of hospital demand and use the estimates to predict the increase in price that various mergers would generate. Two distinct methods of predicting the price increase are implemented and both indicate that even in suburban areas with high outflows of consumers, some hospital mergers could lead to significant price increases.

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  • Cory S. Capps & David Dranove & Shane Greenstein & Mark Satterthwaite, 2001. "The Silent Majority Fallacy of the Elzinga-Hogarty Criteria: A Critique and New Approach to Analyzing Hospital Mergers," NBER Working Papers 8216, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8216
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    1. Katherine Ho, 2006. "The welfare effects of restricted hospital choice in the US medical care market," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(7), pages 1039-1079, November.
    2. John Simpson, 2003. "Geographic markets in hospital mergers: a case study," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 291-303.
    3. David Dranove & Daniel Kessler & Mark McClellan & Mark Satterthwaite, 2003. "Is More Information Better? The Effects of "Report Cards" on Health Care Providers," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 555-588, June.
    4. Warell, Linda, 2005. "Defining geographic coal markets using price data and shipments data," Energy Policy, Elsevier, vol. 33(17), pages 2216-2230, November.
    5. Norton, E.C., 2016. "Health and Long-Term Care," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 951-989, Elsevier.
    6. Kyna Fong, "undated". "Evaluating Skilled Experts: Optimal Scoring Rules for Surgeons," Discussion Papers 07-043, Stanford Institute for Economic Policy Research.
    7. Steven Tenn, 2011. "The Price Effects of Hospital Mergers: A Case Study of the Sutter-Summit Transaction," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 18(1), pages 65-82.
    8. Martin S. Gaynor & Samuel A. Kleiner & William B. Vogt, 2013. "A Structural Approach to Market Definition With an Application to the Hospital Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 61(2), pages 243-289, June.
    9. Lee Mobley & H. E. Frech & Luc Anselin, 2009. "Spatial Interaction, Spatial Multipliers and Hospital Competition," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 16(1), pages 1-17.
    10. Silvana Robone & Alberto Zanardi, 2006. "Market structure and technology: evidence from the Italian National Health Service," International Journal of Health Economics and Management, Springer, vol. 6(3), pages 215-236, September.
    11. Daniel P. Kessler, 2005. "Can Ranking Hospitals on the Basis of Patients' Travel Distances Improve Quality of Care?," NBER Working Papers 11419, National Bureau of Economic Research, Inc.
    12. 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.
    13. Julie Carlson & Ginger Zhe Jin & Matthew Jones & Jason O’Connor & Nathan Wilson, 2017. "Economics at the FTC: Deceptive Claims, Market Definition, and Patent Assertion Entities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(4), pages 487-513, December.
    14. Gary M. Fournier, 2014. "Can Empirical Demand Models Assist in CON Comparative Reviews? A Case Study in Florida," Southern Economic Journal, John Wiley & Sons, vol. 81(1), pages 68-90, July.
    15. Marco Varkevisser & Stéphanie Geest & Frederik Schut, 2010. "Assessing hospital competition when prices don’t matter to patients: the use of time-elasticities," International Journal of Health Economics and Management, Springer, vol. 10(1), pages 43-60, March.
    16. Wu, Vivian Y., 2009. "Managed care's price bargaining with hospitals," Journal of Health Economics, Elsevier, vol. 28(2), pages 350-360, March.
    17. Pietrzak, Michał & Roman, Monika & Mucha, Marcin, 2016. "Geographical delineation of sugar market basing on Eliznga-Hogarty method," Problems of Agricultural Economics / Zagadnienia Ekonomiki Rolnej 249432, Institute of Agricultural and Food Economics - National Research Institute (IAFE-NRI).
    18. Kenneth Elzinga & Anthony Swisher, 2011. "Limits of the Elzinga-Hogarty Test in Hospital Mergers: The Evanston Case," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 18(1), pages 133-146.
    19. Orley Ashenfelter & Daniel Hosken & Michael Vita & Matthew Weinberg, 2011. "Retrospective Analysis of Hospital Mergers," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 18(1), pages 5-16.
    20. Evans, William N. & Kim, Beomsoo, 2006. "Patient outcomes when hospitals experience a surge in admissions," Journal of Health Economics, Elsevier, vol. 25(2), pages 365-388, March.

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    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • I1 - Health, Education, and Welfare - - Health

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