As dominant sellers of health insurance and buyers of health services, BlueCross and Blue Shield have potential monopoly and monopsony power. The credible threat of ent y resulting ?om the increased competitiveness of these markets in the 1980s may have produced competitive outcomes-reduced prices, improved quality and 4-ficient cost structures-even in a concentrated market. We find the plans used economies of scale and monopsony power to reduce administrative costs, provide payments and consumer premiums. Ourfindings suggest that steps to enhance the contestability of health markets may be a better response than regulation.
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