On the Bright Side of Market Concentration in a Mixed-Oligopoly Healthcare Industry

Abstract

We describe the healthcare industry as a mixed oligopoly, where a public and two private providers compete, and examine the effects of a merger between two private healthcare providers on prices, quality, and consumer surplus. When the price and quality of the public provider are regulated, the cost synergies required for the merger to increase consumer welfare are less significant than in a setting with only profit-maximizing providers. When, instead, the public provider can adjust its policy to the rivals' behavior and maximizes a weighted sum of profits and consumer surplus (i.e., it has 'semi-altruistic' preferences), we find that the merger is consumer surplus increasing if the public provider is sufficiently altruist, in some cases even absent efficiencies. These results suggest that ignoring the role and objectives of the public sector in the healthcare industry may lead agencies to reject mergers that, while would decrease consumer welfare in fully privatized industries, would increase it in mixed oligopolies.