In 2005, competition was introduced in part of the hospital market in the Netherlands. Using a unique dataset of transaction and list prices between hospitals and insurers in the years 2005 and 2006, we estimate the influence of buyer and seller concentration on the negotiated prices in the first two years after the institutional change. First, we use a traditional StructureConduct-Performance model (SCP-model) along the lines of Melnick et al. (1992) to estimate the effects of buyer and seller concentration on price-cost margins. Second, we model the interaction between hospitals and insurers in the context of a generalized bargaining model (Brooks et al., 1997). In the SCP-model, we obtain that the concentration of hospitals (insurers) has a significantly positive (negative) impact on the hospital price-cost margin. In the bargaining model, we also find a significant negative effect of insurer concentration on the bargaining share of hospital, but no significant effect of hospital concentration on the division of the gains from bargaining. In both models we find a significant impact of idiosyncratic effects on the market outcomes, consistent with the fact that the Dutch hospital sector is not yet in a long-run equilibrium.JEL-Classification: I11, L1, C7

In this paper we set out the welfare economics based case for imposing cartel penalties on the cartel overcharge rather than on the more conventional bases of revenue or profits (illegal gains). To do this we undertake a systematic comparison of a penalty based on the cartel overcharge with three other penalty regimes: fixed penalties; penalties based on revenue, and penalties based on profits. Our analysis is the first to compare these regimes in terms of their impact on both (i) the prices charged by those cartels that do form; and (ii) the number of stable cartels that form (deterrence). We show that the class of penalties based on profits is identical to the class of fixed penalties in all welfare-relevant respects. For the other three types of penalty we show that, for those cartels that do form, penalties based on the overcharge produce lower prices than those based on profit) while penalties based on revenue produce the highest prices. Further, in conjunction with the above result, our analysis of cartel stability (and thus deterrence), shows that penalties based on the overcharge out-perform those based on profits, which in turn outperform those based on revenue in terms of their impact on each of the following welfare criteria: (a) average overcharge; (b) average consumer surplus; (c) average total welfare.

In 2005, competition was introduced in part of the hospital market in the Netherlands. Using a unique dataset of transactions and list prices between hospitals and insurers in the years 2005 and 2006, we estimate the influence of buyer and seller concentration on the negotiated prices. First, we use a traditional structure–conduct–performance model (SCP-model) along the lines of Melnick et al. (J Health Econ 11(3): 217–233, 1992) to estimate the effects of buyer and seller concentration on price–cost margins. Second, we model the interaction between hospitals and insurers in the context of a generalized bargaining model similar to Brooks et al. (J Health Econ 16: 417–434, 1997). In the SCP-model, we find that the market shares of hospitals (insurers) have a significantly positive (negative) impact on the hospital price–cost margin. In the bargaining model, we find a significant negative effect of insurer concentration, but no significant effect of hospital concentration. In both models, we find a significant impact of idiosyncratic effects on the market outcomes. This is consistent with the fact that the Dutch hospital sector is not yet in a long-run equilibrium.

We analyze the e¤ects of antitrust and leniency programs in a repeated oligopoly model outlined in Motta and Polo (2003). We extend their framework by including the possibility of Type I judicial errors and pre-trial settlements. Through comparison of our results to the earlier results we come to a number of novel conclusions. Firstly, antitrust enforcement in the presence of judicial errors is less e¤ective and ex-ante deterrence is weaker than was predicted by Motta and Polo (2003). Secondly, adverse e¤ects of leniency programs are underestimated by the traditional approach, which does not take Type I judicial errors into account.

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