Do Nonprofit Hospitals Exercise Market Power?

Authors:
John Simpson and Richard Shin
Working Paper:
214

Several theories of nonprofit hospital behavior predict that nonprofit hospitals behave in the consumer interest and thus do not exercise market power. If these theories are correct, then antitrust enforcement of hospital mergers should be restricted only to those markets in which a nonprofit hospital cannot offset anticompetitive behavior by for-profit hospitals. In this paper, we measure a hospital's market power using two alternative measures. The first is the HHI for a county; the second is the distance from a hospital to its closest competitor. For both measures, we find that nonprofit hospitals set higher prices when they have more market power.