Market structure and technology: evidence from the Italian National Health Service

Sutton (1991, Sunk costs and market structure. Cambridge: MIT Press; 1998, Technology and market structure. Cambridge: MIT Press) theorised that industries evolve into distinct market configurations in terms of concentration, depending upon product homogeneity and whether R&D or advertising are relevant relative to set-up costs. This paper tests the existence of such a relationship between technological profiles and market structure empirically, using the health care services provided by the Italian National Health Service as the specific economic framework. Our results support the empirical predictions made by Sutton. In particular, in markets where the technological intensity is low the lower bound to concentration converges monotonically to zero when the market size increases, for any level of product homogeneity. Conversely, in markets where the technological intensity is high the lower bound of concentration converges to some positive (non-zero) value when market size increases, while the lower bound increases (from zero) when the level of product homogeneity increases.