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A Structural Approach to Market Definition With an Application to the Hospital Industry

A Structural Approach to Market Definition With an Application to the Hospital Industry Market definition is common in merger analysis, and often the decisive factor in antitrust cases. This has been particularly relevant in the hospital industry, where many merger challenges have been denied due to disagreements over geographic market definition. We compare geographic markets produced using frequently employed ad hoc methodologies to structural methods that directly apply the ‘SSNIP test’ to California hospitals. Our results suggest that markets produced using previous methods overstate hospital demand elasticities by a factor of 2.4 to 3.4 and were likely a contributing factor to the permissive legal environment for hospital mergers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Industrial Economics Wiley

A Structural Approach to Market Definition With an Application to the Hospital Industry

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References (96)

Publisher
Wiley
Copyright
Copyright © 2013 The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd
ISSN
0022-1821
eISSN
1467-6451
DOI
10.1111/joie.12015
Publisher site
See Article on Publisher Site

Abstract

Market definition is common in merger analysis, and often the decisive factor in antitrust cases. This has been particularly relevant in the hospital industry, where many merger challenges have been denied due to disagreements over geographic market definition. We compare geographic markets produced using frequently employed ad hoc methodologies to structural methods that directly apply the ‘SSNIP test’ to California hospitals. Our results suggest that markets produced using previous methods overstate hospital demand elasticities by a factor of 2.4 to 3.4 and were likely a contributing factor to the permissive legal environment for hospital mergers.

Journal

The Journal of Industrial EconomicsWiley

Published: Jun 1, 2013

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