Competition Between not-for-profit and for-profit Hospitals in Small Markets

This paper examines the relationship between how hospital ownership is organized and the intensity of competition in the health care market. I study the question using an empirical entry model. These models typically exhibit multiple equilibria. To resolve this problem, a novel algorithm that computes all the equilibria of the game is developed. This paper uses the algorithm togetherwith two different equilibrium selection rules to estimate the parameters of interest. My findings suggest that for-profit and not-for-profit hospitals can be regarded as supplying a differentiated products. I usemy estimates to simulate two counterfactuals. First, I study a market were only not-for-profit hospitals exists. The results suggest a decrease in the level of health services. Second, I study a market were not-for-profit firms do not enjoy any tax shelters. I again find a decrease in the level of health services. I conclude that mixed markets are beneficial to consumers.