2007 Volume 19 Issue 2 Pages 129-145
This paper examines the style of the competition on hospital market in Japan and to submit one of the backgrounds for the judgment on the reformation of policies for promoting competition. The paper examined whether it is a “quality competition” or“quasi-price competition” on Japanese hospital market. This paper would be a first empirical analysis of Japanese hospital markets from the view point of Industrial Organization Paradigm.
We constructed unique micro database of Japanese private hospitals by questionnaire survey. According to the micro data analysis by 2SLS in this paper，we find that the results of this analysis show a clear inverse correlation between profit margin and competitiveness of the market. This would imply that standard Industrial Organization paradigm，the hypothesis “competition lowers prices”，would not be applicable for the private hospitals in Japan.
We think that hospitals compete by mainly quality level of hospital service and try to attract patients with high sensitivity of the quality (or amenity). We think private hospitals can get higher profit margin by providing high quality (or amenity) and density service. In short, more competitive hospital market would induce higher quality of hospital service rather than lower cost of the service.
These findings imply that policies for promoting competition in Japanese hospital market would cause both quality improvement and medical cost inflation.
