Hospital Mergers with Regulated Prices

We study the effects of a hospital merger in a spatial competition framework where semi-altruistic hospitals choose quality and cost-containment effort. Whereas a merger always leads to higher average cost efficiency, the effect on quality provision depends on the strategic nature of quality competition, which in turn depends on the degree of altruism and the effectiveness of cost-containment effort. If qualities are strategic complements, then a merger leads to lower quality for all hospitals. If qualities are strategic substitutes, then a merger leads to higher quality for at least one hospital, and might also yield higher average quality provision and increased patient utility.