Mark Shanley

Price and Concentration in Hospital Markets: The Switch from Patient-Driven to Payer-Driven Competition

PERHAPS the most widely accepted paradigm of industrial organization (I/O) is that competition lowers prices or, alternatively, that price/cost margins are lower in less concentrated markets.1 The applicability of this paradigm for hospital markets has been questioned. For example, in United States vs. Carilion Health System and Roanoke Valley Hospital, the district and appellate courts accepted evidence that hospital prices are lower in more concentrated markets and thereby approved a merger between the two largest hospitals in a three-hospital market.2 The view that competition has a weak or perverse effect on hospital prices is shared by a number of researchers,3 is a common theme in newspaper stories

Do strategic groups exist? an economic framework for analysis

This paper offers a framework and methodology for resolving the question regarding the existence of strategic groups. We say that a strategic group exists if characteristics of the group affect firm performance independently of firm-level and industry-level effects. We argue that group-level effects are a byproduct of strategic interactions among members, and develop an empirical testing model, based on the ‘New Economics of Industrial Organization,’ to distinguish true group effects from spurious effects. From this model, we derive a series of logically consistent propositions, suggesting that while strategic interactions are critical for a group-level effect on profits, mobility barriers are necessary to preserve both groups and their effects over time. A review of prior empirical studies of strategic groups suggests that the inconclusive nature of prior research has been due more to the lack of a theoretical foundation for empirical analysis than to the nonexistence of groups. To the extent that our methods have been employed, there is limited evidence that a rigorous search for strategic groups may prove fruitful.

Exploiting a Cost Advantage and Coping with a Cost Disadvantage

This paper provides an empirical investigation of how firms with cost advantages (cost disadvantages) exploit (cope with) their advantages (disadvantages) through their pricing behavior. Guided by microeconomic theory and insights from the industrial organization literature, we develop testable implications about the effect of industry structure and firm-specific characteristics on the pass-through elasticity: The rate at which changes in a firms cost relative to competitors translates into changes in the firms price relative to competitors. We test these implications using data from the PIMS Competitive Strategy database. The results indicate that a firms pass-through elasticity systematically depends on whether the firm operates in a commodity or noncommodity industry, the firms capacity utilization, and its cost and quality position in its industry. The pass-through elasticity is also shown to depend in a nonlinear way on market concentration.

A note on the relational aspects of hospital market definitions

Several recent analyses of the structure, conduct and performance of local hospital markets base their market definitions on geographic constructs that fail to consider the implications of a markets location relative to other hospital markets. In this note we show the importance of relational aspects of hospital markets. Use of any a priori measure of hospital markets that does not consider these aspects should be reconsidered.

Determinants and Consequences of Post-Acquisition Change

A major wave of acquisition activity developed in the US after 1976 (Golbe and White 1988). Evidence on the results of this activity for corporate acquirers is mixed (Porter 1987), while claims about its negative consequences for stakeholders have prompted numerous concerns (Siegfried and Sweeney 1982). The mechanisms by which acquisitions create value are unclear and little attention is devoted to what happens in firms after changes in ownership (Shanley and Correa 1992).1 This chapter studies the determinants and consequences of post-acquisition changes for 51 Fortune 500 acquisitions. Our results suggest that changes are best understood by an incremental management style that avoids disruptions, maintains flexibility, and maximises organisational learning.

How Fast Are Hospital Prices Really Rising

The hospital services component of the Consumer Price Index (CPI) measures the cost of hospital services to private patients paying list prices. It is, however, widely used as an estimate of the overall rate of inflation in hospital prices in spite of the fact that there are strong reasons to believe that it is inappropriate to use the CPI for this purpose. This is because: 1) A growing number of patients are enrolled in health maintenance organizations (HMOs) and preferred provider organizations (PPOs), which negotiate discounts from list prices; and 2) the size of the discounts may have been increasing. The potential result is a gap between the rate of inflation of list prices and the rate of inflation of actual prices paid in transactions. This study explores whether such a gap exists and determines its possible magnitude. In addition, parallel indices for list and actual prices are computed on the basis of data from California hospitals for fiscal years 1983-1988. The analysis suggests that list price inflation has greatly exceeded actual inflation—by a factor of two for recent years. These findings have broad implications for evaluating not only inflation but also the impact of cost containment strategies.

The centrality of process

This paper makes the case for the pervasiveness, centrality, and criticality of strategy process, with the aim of increasing support for strategy process research and a greater recognition of its importance. We argue this on the basis of a framework that illustrates the fundamental property and characteristic traits of strategy process, suggesting that strategy process is at the heart of such popular topics as dynamic capabilities.

Governance structure and organisational learning in franchising

When parent firms employ different governance structures for their individual outlets, they may create different learning environments. Specifically, different levels of organisational routines and local adaptability emerge across independent, company-owned and franchisee-owned outlets (including single versus multi-unit franchisee-owned outlets). Company-owned outlets tend to exhibit a high level of organisational routines, whereas independent outlets feature a high level of local adaptability. Franchisee-owned outlets reveal a moderate level of organisational routines and local adaptability. Multi-unit franchisee-owned outlets have a higher level of organisational routines and a lower level of local adaptability relative to single-unit franchisee-owned outlets.

Multi-Level Issues for Strategic Management Research: Implications for Creating Value and Competitive Advantage

Most research issues in strategic management are essentially problem focused. To one extent or another, these problems often span levels of analysis, may align with different performance metrics, and likely hold different implications from various theoretical perspectives. Despite these variations, research has generally approached questions by taking a single perspective or by contrasting one perspective with a single alternative rather than exploring integrative implications. As such, very few efforts have sought to consider the performance implications of using combined, integrated, or multi-level perspectives. Given this reality, what actually constitutes “good” performance, how performance is effectively measured, and how performance measures align with different perspectives remain thorny problems in strategic management research. This paper discusses potential extensions by which strategic management research and theory might begin to address these conflicts. We first consider the multi-level nature of strategic management phenomena, focusing in particular on competitive advantage and value creation as core concepts. We next present three approaches in which strategic management theories tend to link levels of analysis (transaction, management, and atmosphere). We then examine the implications arising from these multi-level approaches and conclude with suggestions for future research.

Balancing Theory and Technique: Methodological Issues in Strategic Groups Research

Research on strategic industry groups provides numerous examples of the tensions between theory and methodology in strategic management research. After an initial explosion of largely non-theoretical, methods-driven studies led to mounting criticisms, researchers recognized the need for more theoretical guidance concerning the nature of groups and their potential influences on firm performance. This refocusing on theory has produced different research streams, each with its own methodological concerns. This chapter reviews these developments with the objective of understanding how researchers balance theory and methods in current research.