The competitive effects of horizontal mergers in the hospital industry

Past empirical research has associated higher prices (and potentially profits) with less concentrated hospital markets. This has led to consternation among policymakers who must decide whether or not to apply traditional antitrust guidelines to hospital mergers. Due to the inherent flaws of accounting data, an 'event study' methodology is used to examine the effects of merger related announcements on the competitors' stock price returns. The results provide evidence that events which promote mergers increase the profits of competitors, while events which deter mergers decrease them. Furthermore, the greater the merger impact on local hospital markets, the stronger the effect.