The purpose of this paper is to investigate the potential for segmentation in hospital markets, using the French case where private for-profit providers play an important role having nearly 25% of market shares, and where prices are regulated, leading to quality competition. Using a stylized economic model of hospital competition, we investigate the potential for displacement between vertically differentiated public and private providers, focusing on maternity units where user choice is central. Building over the model, we test the following three hypotheses. First, the number of public maternity units is likely to be much larger in less populated departments than in more populated ones. Second, as the number of public maternity units decreases, the profitability constraint should allow more private players into the market. Third, private units are closer substitutes to other private units than to public units. Building an exhaustive and nationwide data set on the activity of maternity services linked to detailed data at a hospital level, we use an event study framework, which exploits two sources of variation: (1) The variation over time in the number of maternity units and (2) the variation in users’ choices. We find support for our hypotheses, indicating that segmentation is at work in these markets with asymmetrical effects between public and private sectors that need to be accounted for when deciding on public market entry or exit.
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