Hospitals Quality Competition and Specialization Choice under Regulated Price

Abstract

Non-price competition strategy is a major health policy concern in many countries. This paper studies the treatment specialization choice and quality level competition among hospitals. We extend a two-stage spatial duopoly model, with the partially altruistic providers firstly choosing specialization and then determining quality level when the treatment price is set exogenously by central planner. The first best conclusion of quality is that two hospitals always invest equally much is quality, which suggests the “quality weapon” between hospitals in reality. Then, specialization-quality equilibrium gives the conclusion that quality competition introduces a centrifugal effect in the specialization game. And with the unmatched cost between patients disease and hospital’s specialization is lower, hospitals' equilibrium quality level and specialization differentiation will decrease.