Ruhr Economic Papers

Ruhr Economic Papers #839

Quality Provision in Competitive Health Care Markets – Individuals vs. Teams

by Johann Han, Nadja Kairies-Schwarz and Markus Vomhof

UDE, 01/2020, 40 S./p., 8 Euro, ISBN 978-3-86788-972-8 DOI: 10.4419/86788972

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Abstract

We investigate the quality provision behavior and its implications for the occurrence of collusion in competitive health care markets where providers are assumed to be altruistic towards patients. For
this, we employ a laboratory experiment with a health care market framing where subjects decide on
the quality levels for one of three competing hospitals respectively. We vary whether quality decisions
within hospitals are made by individuals or teams. Realized monetary patient benefits go to real patients
outside the lab. We find that degrees of cooperation quickly converge towards negative values implying
absence of collusion and patient centered quality choices. Moreover, hospitals treat qualities as strategic
complements and adjust their quality choice in the same direction as their competitors. The response
magnitude for team markets is weaker. This is driven by the non-cooperative, or altruistic teams which
tend to set qualities strategically independent.

JEL-Classification: C92, D03, D43, D64

Keywords: Quality competition; health care markets; team decisions; altruism; laboratory experiment

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