Vertical Integration between Hospitals and Insurers

Cuesta, José Ignacio; Noton, Carlos; Vatter, Benjamin

doi:10.2139/ssrn.3309218

Cited by 14 publications

(6 citation statements)

References 59 publications

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“…Its underlying model is similar to the model that is the primary focus of this paper in the sense that it assumes that upstream and downstream prices are set simultaneously. Cuesta et al (2019) conducts a similar exercise to that of Crawford et al (2018) to examine the impact of vertical mergers between insurers and hospital systems. It bases its analysis on a model that assumes that input prices are set before output prices.…”

Section: Taking Account Of the Elimination Of Double Marginalization mentioning

confidence: 99%

Modelling and predicting the competitive effects of vertical mergers: The bargaining leverage over rivals effect

Rogerson¹

2020

Canadian J of Economics

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A new competitive effect of vertical mergers, based on the Nash bargaining model, has begun to play an important role in antitrust authorities’ evaluations of vertical mergers in the United States, Canada and abroad. The key idea is that a vertical merger will increase the bargaining leverage of the merged firm over its downstream rivals. Its bargaining leverage increases because it now takes into account the additional profit that its own downstream division will earn if it withholds inputs from downstream rivals, which changes its threat point in the bargaining game with downstream rivals. Consequently, the merged firm can increase the price that it charges rival downstream firms for inputs. One strong appeal of this theory is that it provides a simple and very intuitive formula to measure the upward pricing pressure caused by a vertical merger due to changes in bargaining leverage, based on variables whose values can generally be estimated using available data. This article describes this new competitive effect, which will be called the bargaining leverage over rivals (BLR) effect, and derives the upward pricing pressure formula. It also explains why this new competitive effect is distinct from the older raising rivals’ costs (RRC) effect that has been widely discussed in the economics literature, and discusses the relationship between the two different effects.

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Section: Taking Account Of the Elimination Of Double Marginalization mentioning

confidence: 99%

Modelling and predicting the competitive effects of vertical mergers: The bargaining leverage over rivals effect

Rogerson¹

2020

Canadian J of Economics

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“…They found that the prices for the services provided by acquired physicians increase by an average of 14.1% post-acquisition. Cuesta et al (2019) developed a model of bargaining and patient demand to assess the impact of integration between hospitals and insurers in Chile during 2013-2016. They found that welfare implications of vertical integration are ambiguous as cost efficiencies and the elimination of double marginalization may offset increases in market power and incentives to raise rivals' costs.…”

Section: Empirical Studies Regarding Gains In Vertical Mergersmentioning

confidence: 99%

“…Figure 2. Studies assessing the relative gains in and effects from vertical mergers, including Chatterjee(1991),Fan and Goyal (2006),Kedia et al (2011),Shenoy (2012),Ahern (2012),Baker et al (2014),Gil (2015),Gil and Warzynski (2015),Crawford et al (2018),Hosken and Taylor (2020),Baker et al (2020),Cuesta et al (2019),Capps et al (2018),Wan and Sanders (2017),Koch et al (2020), Yang (2020),Boehm and Sonntag (2021).…”

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confidence: 99%

The Impact of Vertical Theories of Harm on Investor Returns: An Event Study of US Vertical Mergers

Sonenshine

2022

JRFM

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The welfare implications of vertical mergers have been a subject of disagreement for decades. Similar to horizontal mergers, economists need to weigh the efficiency gains relative to the market power concerns when considering the competitive effects of vertical mergers. However, in vertical mergers, regulators are also concerned with other potential harmful effects, such as input and customer foreclosure. Using an event style technique, this paper explores these vertical theories of harm by comparing the abnormal returns of acquirers, targets, and the two combined in vertical and horizontal mergers that were challenged by regulators as potentially anticompetitive. Our results indicate that abnormal returns to targets were similar between vertical and horizontal mergers, but the gains to targets relative to acquirers were far higher in vertical versus horizontal mergers (53.6% versus 39.5%). In addition, we found that exclusionary effects have a positive impact (0.24% of the dollar abnormal return) on the bargaining position of targets. In contrast, acquirers gain 0.45% and 0.39% of the dollar abnormal return relative to targets when the antitrust concern entails collusive effects or elimination of potential competition, respectively.

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“…Adopting a similar approach, Cuesta, Noton and Vatter (2019) examine vertical integration between hospitals and insurers in the private Chilean health care market. Building upon the hospital-insurer industry model developed in Ho and Lee (2017), they explore the extent to which integrated hospitals and insurers reduce double marginalization, and act to foreclose rival insurers from their hospital services.…”

Section: Effects Of Vertical Integration and Mergersmentioning

confidence: 99%