Foundations and Trends® in Microeconomics > Vol 2 > Issue 6

Competition and Quality in Health Care Markets

By Martin Gaynor, H. John Heinz III School of Public Policy and Management, Carnegie Mellon University, UK,

Suggested Citation
Martin Gaynor (2007), "Competition and Quality in Health Care Markets", Foundations and TrendsĀ® in Microeconomics: Vol. 2: No. 6, pp 441-508.

Publication Date: 21 Feb 2007
© 2006 M. Gaynor
Health Economics,  Industrial Organization
AntitrustCompetitionHealth care markets

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In this article:
1 Introduction 
2 Performance Standards 
3 What Do We Know From Economic Theory? 
4 What Do We Know From Econometric Studies? 
5 Summary and Conclusions 


The goal of this paper is to identify key issues concerning the nature of competition in health care markets and its impacts on quality and social welfare and to identify pertinent findings from the theoretical and empirical literature on this topic. The theoretical literature in economics on competition and quality, the theoretical literature in health economics on this topic, and the empirical findings on competition and quality in health care markets are surveyed and their findings assessed. Theory is clear that competition increases quality and improves consumer welfare when prices are regulated (for prices above marginal cost), although the impacts on social welfare are ambiguous. When firms set both price and quality, both the positive and normative impacts of competition are ambiguous. The body of empirical work in this area is growing rapidly. At present it consists entirely of work on hospital markets. The bulk of the empirical evidence for Medicare patients shows that quality is higher in more competitive markets. The empirical results for privately insured patients are mixed across studies.

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Table of contents:
Performance Standards
What Do We Know From Economic Theory?
What Do We Know From Econometric Studies?
Summary and Conclusions

Competition and Quality in Health Care Markets

Competition and Quality in Health Care Markets provides an economic assessment of the impact of competition on quality in health care markets. This book is especially relevant for antitrust policy in countries where there are well established health care markets like the United States and can be used to evaluate market oriented reforms in Europe and elsewhere. Competition and Quality in Health Care Markets offers performance standards for competition, relevant findings from economic theory, and empirical evidence on health care competition and quality. Competition and Quality in Health Care Markets is the most complete and current review of the economics on the impact of competition on health care. This book should be read by health economists, health administrators and policy analysts, and those interested in antitrust and industrial organization.