Spatial Competition between Health Care Providers: Effects of Standardization

Abstract

In the international health care literature the impacts of competition in health care markets are discussed widely. But aspects of standardization in regional health care markets with no price competition received comparatively little attention. We use a typical Hotelling framework to analyze a regional health care market with two health care providers competing in (vertical) quality after the scope of medical treatment has been set (horizontal quality). We conclude that in the basic model both health care providers will use vertical quality to separate from each other. In the next step we introduce a standard in vertical quality of which one health care provider — the standard profiteer—could better cope with. In the standardization case a more homogeneous supply can be expected and there is a higher possibility that the standard follower has to leave the regional health care market. Therefore standardization of health care quality could strengthen monopolistic tendencies.