Cross-Market Mergers
Much of the literature on hospital consolidation focuses on mergers between hospitals that compete in the same geographic market. However, a growing share of hospital mergers involve systems that operate in distinct local markets and do not directly compete for patients. These cross-market mergers pose a challenge for standard antitrust analysis, since they do not mechanically reduce local competition or increase concentration as measured by traditional market-definition tools. Understanding how such mergers affect prices therefore requires alternative economic mechanisms.
Recent work emphasizes that cross-market consolidation can increase prices through changes in bargaining leverage rather than local market power. When a hospital system operates in multiple markets, it may gain the ability to negotiate higher prices by leveraging common insurers or employers across markets, even if hospitals within a given market remain geographically distinct. Related work draws on the concept of multimarket contact, in which firms competing across multiple markets internalize the effects of aggressive pricing in one market on competition in others. These mechanisms suggest that consolidation can raise prices even in the absence of within-market overlap.
We introduce this literature by focusing on empirical studies that test these mechanisms in hospital markets. These papers examine how prices respond to system expansion across markets and how shared customers and multimarket interactions shape bargaining outcomes. Together, they extend the standard merger framework and highlight the importance of system-level organization for understanding hospital pricing.
Potential papers for presentation today include:
- Dafny, Ho, and Lee (2019) — evidence on cross-market mergers and the common-customer mechanism
- Schmitt (2018) — multimarket contact and hospital pricing
- Lewis and Pflum (2017) — system expansion and bargaining leverage across markets