Quality competition and hospital mergers: An experiment

Based on a Salop model with regulated prices, we investigate quality provision behavior of competing hospitals before and after a merger. For this, we use a controlled laboratory experiment where subjects decide on the level of treatment quality as head of a hospital. We find that the post-merger average quality is significantly lower than the average pre-merger quality. However, for merger insiders and outsiders, average quality choices are significantly higher than predicted for pure profit maximizing hospitals. We show that the upward deviation is potentially driven by altruistic behavior towards patients. Furthermore, we fi nd that in case sufficient cost synergies are realized by the merged hospitals, this yields a significant increase in average quality choices compared to the scenario without synergies. Finally, we find that our results do not change when comparing individual to team decisions.