Process innovation and inter-hospital competition

ABSTRACT

We used a Cournot model to associate process innovation with the market structure in a theoretical duopoly for secondary healthcare. We considered a situation wherein neither incumbent hospital focuses on process innovation and another situation wherein one hospital brings in process innovation but another does not. This approach highlights two points. The first concerns secondary care settings wherein incentives for process innovation in healthcare provided by hospitals can be created with moderate marginal costs. Inter-hospital competition lowers costs for patients and improves consumer surplus. The second point concerns primary and tertiary care wherein marginal costs are rather high or low and incentive to innovate processes is limited. In such settings, inter-hospital competition does not improve consumer surplus and is less likely to reduce costs. As a result, neither hospital may choose to provide these types of care.

KEYWORDS:

• Process innovation
• health care
• Cournot competition
• duopoly market
• marginal cost
• consumer surplus

Disclosure statement

No potential conflict of interest was reported by the author(s).