Multimarket Contact in the Hospital Industry∗

Hospitals in the U.S. increasingly belong to multihospital systems that operate in multiple geographic markets. A large literature in management and economics suggests that competition between firms may be softened as a result of multimarket contact – i.e., when firms compete with one another in several markets simultaneously. I test whether increases in multimarket contact over the 2000-2010 period caused increases in hospital prices. Across a variety of econometric analyses, including those that exploit plausibly exogenous variation in multimarket contact generated by out-of-market consolidation, I find that multimarket contact does lead to higher hospital prices. To date, academic research and antitrust enforcement has primarily focused on the effects of mergers that increase within-market hospital concentration. My results suggest that continued consolidation in the industry – especially mergers between large hospital systems – may lead to higher prices even if that consolidation entails only minimal changes to within-market concentration. ∗I thank my advisors, fellow PhD students, and seminar participants at the Kellogg School of Management for helpful feedback. I especially thank Leemore Dafny and David Dranove for their detailed comments and encouragement. †Email: [email protected] ‡For the most up-to-date version of the paper, see my website at http://www.kellogg. northwestern.edu/faculty/schmitt/index.htm.