Competition and market power in option demand markets.
We call markets in which intermediaries sell networks of suppliers to consumers who are uncertain about their needs "option demand markets." In these markets, suppliers may grant the intermediaries discounts in order to be admitted to their networks. We derive a measure of each supplier's market power within the network; the measure is based on the additional ex ante expected utility consumers obtain from the supplier's inclusion. We empirically validate the WTP measure by considering managed care purchases of hospital services in the San Diego market. Finally, we present three applications, including an analysis of hospital mergers in San Diego.
Northwestern University, USA. c-capps@northwestern.edu.
Cory
C
Capps
David
D
Dranove
Mark
M
Satterthwaite
D016363:Antitrust Laws; D002140:California; D004465:Economic Competition / Q000706:statistics & numerical data; D005843:Geography; D006273:Health Facility Merger; D006301:Health Services Needs and Demand / Q000706:statistics & numerical data; D006801:Humans; D008329:Managed Care Programs; D008389:Marketing of Health Services; D017146:Models, Organizational; D014481:United States