Spooky Action at a Distance: Why Do Cross-Market Mergers Affect Prices
Economic analyses of merger effects usually focus on firms that participate in the same market. However, recent evidence suggests that mergers of hospitals serving different geographic markets – so-called “cross-market mergers” often result in higher prices at target hospitals. We explore several potential mechanisms for these findings. We find that traditional market power explanations cannot explain price increases. As suggested by other scholars, we do find that price increases sometimes occur when insurers sell to employers whose operations cross geographic boundaries, so that they have “overlapping customers.” Price increases often occur in the absence of significant customer overlap, however. Based on conversations with industry experts about contracting practices, we hypothesize that cross-market merger price increases are often an artifact of employer-imposed access requirements, contracting costs and, potentially, poor management practices. These findings have important implications for antitrust enforcement of cross-market mergers.
David Dranove, Benjamin Vatter
Dranove, David, and Benjamin Vatter. 2022. Spooky Action at a Distance: Why Do Cross-Market Mergers Affect Prices.