Hospital Costs and Competition for Services: A Multiproduct Analysis

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Abstract
We estimate the effects of market structure on hospital costs using a translog multiproduct cost function. Recognizing the multiplicity of services provided by hospitals, the results show that costs are substantially determined by service configuration, and that there are distinct economies of size and scope. The model also distinguishes market concentration measures by service type, including obstetrics, radiation therapy, diagnostic imaging and surgery. Estimates show that, after controlling for the other determinants of cost, the degree of competition has only modest cost-increasing effects.

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