Spatial Competition Models in Health Care Markets: A Review

Abstract

Through time, spatial competition has become the natural environment for studying a number of problems, ranging from product differentiation to mail order versus traditional business, to service provision under various assumptions about the institutional setting. Health economics research has greatly benefited from the intuitions that underlie the Hotelling model and several authors have contributed to the literature on the architecture of the market for health care by proposing models within this framework. In this paper we explore how spatial competition has been used in health economics to improve the knowledge of the mechanisms of the market for health care through the derivation of significant policy implications. One of the most important messages is that in spite of competition, the regulator still should have a central role in the architecture of the market and policies have to be carefully tailored in order to avoid the onset of perverse, undesired effects on quality and welfare.