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STICERD Industrial Organisation Seminars

Diagnosing Price Dispersion:Demand, Bargaining and Search in Hospital-Supplier Contracting

Matt Grennan (Wharton School, University of Pennsylvania)

Monday 11 March 2019 12:30 - 14:00

Due to the onging coronavirus outbreak, many of our seminars and public events this year will continue as online seminars. Please check our website listings and Twitter feed @STICERD_LSE for updates.


About this event

Using detailed purchase order data for a large sample of US hospitals 2009-15, we document large price dispersion across hospital buyers for identical brands in a variety of important medical supply categories. Hospitals also vary dramatically in the size and composition of the set of suppliers they contract with, and on average contract with an order of magnitude fewer suppliers than are available in the market. We develop a model and identification strategy to determine the extent to which this dispersion is determined by brand preferences, search/contracting costs, and bargaining abilities. Estimates suggest that markups are primarily driven by lack of price sensitivity among health care providers in their usage decisions. Hospital administrator bargaining ability varies widely across hospitals, driving most of the observed price dispersion. Reducing search/contracting costs does reduce prices and price dispersion, but mostly impacts hospital surplus through putting higher value brands in the choice set. These effects vary dramatically across device categories, hospitals, and brands. Hospitals with previously small and low quality choice sets gain enormously from lower search costs, while others gain more modestly. Similarly, some high value, high search cost brands go from infrequent to heavy use across the market, while other brands’ profits decrease.

Industrial Organisation seminars are held on Mondays in term time at 12:30-14:00, ONLINE, unless specified otherwise.

Seminar organiser: Alessandro Gavazza.

For further information please contact Lubala Chibwe, either by email: l.chibwe@lse.ac.uk.

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