Bilateral bargaining and welfare effects of increasing market power in the U.S. health insurance market
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School of Business |
Bachelor's thesis
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Date
2023
Department
Major/Subject
Mcode
Degree programme
Bachelor’s programme in Economics
Language
en
Pages
26 + 7
Series
Abstract
Health care in the U.S. is largely financed through private insurance, and the market is characterized by features of bilateral oligopoly, where both hospital and insurance side of the market tend to be highly concentrated. Furthermore, prices are determined in bargaining between the market participants. In this thesis, I study the mechanisms of determining prices under this market structure, as well as the potential effects of increasing market concentration on prices and welfare - questions that have evident relevance for policy decisions. This literature review provides a central theoretical model for bargaining between upstream and downstream firms following recent literature. Furthermore, I address empirical evidence from existing literature to gain an understanding of how anti-competitive strategies, namely mergers and exclusion from networks might affect welfare outcomes. I find that generally speaking, bargaining tends to make a difference in the division of surplus and might potentially mitigate the adverse effects of decreasing competitiveness as opposed to a simple "posted prices" mechanism. Moreover, I find that empirical results often exhibit heterogeneity among geographical areas or different consumer groups, and when it comes to policy making, likely impacts should ideally be evaluated individually case by case.Description
Thesis advisor
Stryjan, MiriKeywords
bilateral oligopoly, health insurance, bargaining, mergers, networks