In this Antitrust Law Journal article, the authors present theoretical arguments and empirical evidence to explain why complementarities can result in hospital mergers lowering prices.
Hospital mergers have become increasingly frequent in the United States. Policymakers have challenged several recent proposed mergers, concerned that they would lead to a loss of competition. However, empirical evidence is mixed on whether hospital mergers will in fact reduce competition and increase prices. Courts have also reached differing opinions when assessing the potential competitive effects of proposed hospital mergers.
In “Accounting for Complementarities in Hospital Mergers: Is a Substitute Needed for Current Approaches?,” Dina Older Aguilar, Kathleen Easterbrook, Gautam Gowrisankaran, and Yufei Wu explore the idea that complementarities across hospitals and their value to insurers is one reason why different hospital mergers have different effects on prices.
While complementarities—two products delivering more value when consumed together than the sum of the values that each product delivers alone—can be important to merger analysis, they have not been widely discussed in academic literature or enforcement of hospital mergers. In general, a merger of firms that offer complementary products can lead to lower rather than higher prices. In the case of two complementary hospitals, a combined entity may accept lower prices in an insurer negotiation than they would accept when negotiating individually.
The authors advance this theory by explaining the theoretical conditions under which complementarities can result in hospital mergers lowering prices, empirically examining whether hospital pricing in the real world supports the implications of hospital complementarities, reviewing the limitations of current hospital merger screening tools, and proposing approaches to account for complementarities in future merger evaluations.
The article was originally published by the American Bar Association Section of Antitrust Law’s Antitrust Law Journal in May 2019.
The views expressed herein do not necessarily represent the views of Cornerstone Research.
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