NONPROFIT HOSPITAL MERGERS AND THE EXERCISE OF MARKET POWER

Government challenges to mergers within the hospital industry have become more frequent. Many of those mergers involve nonprofit organizations rather than the for-profit firms that are the norm in most other industries. This difference in ownership has made no apparent difference in the antitrust agencies' approach to proposed hospital mergers. In this article I test the proposition that nonprofit and for-profit hospitals price differently in response to the structure of the markets in which they compete. Based on a cross-sectional analysis of California hospitals, I find that estimated merger effects on hospital prices do vary by type of ownership. In response to either higher market share or to the joint combination of higher share and higher market concentration, private nonprofit hospital prices are statistically significantly lower than for-profit hospital prices, and on balance in this sample there is no evidence of any systematic price-increasing effect on private nonprofit hospitals.