Three Essays in Industrial Organization.

Abstract

Understanding the behavior of organizations that are not solely governed by a profit-maximizing objective function is of central importance in microeconomics and for public policy. For example, the hospital industry, representing roughly 6% of United States Gross Domestic Product in 2012, is dominated by nonprofit hospitals. Similarly, the United States Postal Service is a quasi-government regulated entity that is charged with binding “the Nation together through the personal, educational, literary, and business correspondence of the People.” The choices of these organizations make can have important direct consequences on the health and communicative ability of U.S. residents. While there is a substantial empirical literature about these industries, most studies are plagued by econometric difficulties.

The studies comprising this dissertation examine the behavior of nonprofit hospitals in response to increased market power due to mergers and analyze the price elasticity of consumers of Postal Service products. The central finding related to hospital mergers is that nonprofit hospitals increase price per discharge and profit in post-consolidation years, conforming to expectations related to for-profit firms and the exercise of market power. I develop a model that predicts this outcome, and I confirm it via an empirical analysis. I find that merging nonprofit hospitals increase their average price per discharge by as much 10% and “profit” by more than 50%. These increases are only observable in the long run after a merger occurs. In addition, updated econometric techniques reveal that consumers of U.S. postal products are more price elastic than conventional estimates suggest.

The results of these studies have important policy implications for antitrust and postal regulators. In the past, hospitals have experienced relative freedom to merge, particularly when one or more nonprofit hospitals were involved in the transaction. The present analysis, together with other recent literature, suggests that jurists should exercise the same scrutiny when considering mergers involving nonprofit hospitals as they do in for-profit merger cases. Finally, in face of the fiscal crisis facing the U.S. Postal Service, better information regarding consumer price sensitivity is of central importance to regulators and public policy makers.