Michael G. Vita

Exploring hospital production relationships with flexible functional forms

This paper estimates a multiproduct variable cost function using data on a sample of California hospitals. The results provide useful insights into the advantages and disadvantages of flexible functional forms for cost analysis. The translog function appears to provide reasonable estimates of marginal costs when evaluated at or near the approximation point of the function. The estimated function performs less satisfactorily, however, when evaluated outside this range. The papers results do not provide strong evidence of either ray scale economies or of weak cost complementarities. There is some evidence, however, that the degree of scale economies may be underestimated.

The Competitive Effects of Not-for-Profit Hospital Mergers: A Case Study

Applying conventional horizontal merger enforcement rules to nonprofit hospitals is controversial. Critics contend that the different objective function of not-for-profits entities should mitigate competitive concerns about mergers involving nonprofit hospitals. We analyze a merger that reduced the number of competitors (both nonprofit) in the alleged relevant market from three to two. We find that the transaction was followed by significant price increases; we reject the hypothesis that these price increases reflect higher post-merger quality. This study should help policymakers assess the validity of current merger enforcement rules, especially as they apply to not-for-profit enterprises. Copyright 2001 by Blackwell Publishing Ltd

Vertical Antitrust Policy as a Problem of Inference

The legality of nonprice vertical practices in the U.S. is determined by their likely competitive effects. An optimal enforcement rule combines evidence with theory to update prior beliefs, and specifies a decision that minimizes the expected loss. Because the welfare effects of vertical practices are theoretically ambiguous, optimal decisions depend heavily on prior beliefs, which should be guided by empirical evidence. Empirically, vertical restraints appear to reduce price and/or increase output. Thus, absent a good natural experiment to evaluate a particular restraint’s effect, an optimal policy places a heavy burden on plaintiffs to show that a restraint is anticompetitive.

Retrospective Analysis of Hospital Mergers

Abstract Retrospective analyses of hospital mergers may be uniquely valuable because they speak directly to two important issues – the methods used for delineating relevant geographic markets in hospital merger analysis, and the implications of not‐for‐profit status on post‐merger hospital pricing – that have been systematically misunderstood by the courts and other policy analysts, and which likely have led to systematically biased judicial decisions. By identifying these systematic analytical errors and their implications for judicial decision making, retrospective studies of consummated hospital mergers have the capacity to greatly improve the quality of future antitrust policy making.

Mergers between Competing Hospitals: Lessons from Retrospective Analyses

Abstract In April 2002, the Federal Trade Commission (FTC) announced the Hospital Merger Retrospective Project to study consummated hospital mergers. This project was precipitated by a long string of unsuccessful hospital merger challenges by the FTC, the US Department of Justice, and the state of California. Accordingly, a principal goal of the retrospective study included “studying consummated hospital mergers to determine whether particular hospital mergers have led to higher prices”. The studies presented here represent the output of this project. Collectively, these studies provide important empirical insights into a variety of issues relevant to hospital antitrust analysis, including the scope of relevant geographic markets in hospital merger analysis, the relevance of not‐for‐profit status on post‐merger pricing behavior, and the impact of hospital mergers on clinical quality.

Must Carry Regulations for Cable Television Systems: An Empirical Analysis

The 1992 Cable Act requires cable systems to carry local broadcasters. Noncarriage of local stations may represent an attempt by cable systems to disadvantage rivals, and thereby raise the prices of advertising and cable service. Alternatively, noncarriage might represent the efficient replacement of low-valued channels with more highly-valued programming. This study attempts to discriminate between these hypotheses with data on cable carriage decisions. The results support the efficiency hypothesis. Systems selling advertising are less likely to drop local stations than nonadvertisers. Dropped stations tend to have low audience ratings, and tend to originate in a different geographic market from the system.

Must‐carry regulations for cable television systems: An economic policy analysis

Recently the FCC has considered reimposing must‐carry rules, which would compel cable systems to carry local broadcast television stations. Proponents contend that the rules would help constrain cable systems’ market power. We examine empirically whether cable systems’ carriage choices reflect the exercise of market power. Despite the absence of must‐carry regulations, the data suggest that most cable systems voluntarily carry most local broadcast stations. Noncarried local broadcast signals were either those of relatively remote (and duplicated) network stations, or poorly rated local independent stations. These results question the desirability of adopting new must‐carry regulations.

The import of hospital rate setting programs on hospital and health care expenditures, 1975–85

To reduce hospital expenditures, many jurisdictions now regulate hospital rates. Prior theoretical work has demonstrated, however, that the effect of rate regulation on total expenditures is a priori unclear. Empirical research has found that hospital rate setting programs have reduced expenditures per diem and per admission, but not necessarily hospital expenditures or total health care expenditure per capita. This study extends this empirical research. It employs pooled cross section-time series data on state level expenditure, regulatory, and demographic variables obrserved annually for 1975–85. The analysis provides little evidence that hospital rate setting programs have reduced hospital expenditures. Some rate setting programs actually are positively and significantly related to hospital expenditures. Overall, this study does not suggest that regulatory programs will reduce hospital expenditures.

Phosphate products and the extent of the geographic market

The manufacture and distribution of phosphate rock and its associated products are large consumers of energy. As a consequence, a change in the price of energy can have a quite substantial effect on the cost of production. This will affect the price that the product can be sold for. Whether this will affect the sales of the product is dependent on what is the relevant market. Consequently, to understand this issue, the extent of the geographic market must be defined. To this end, a definition is detailed relying on the concept of instantaneous causality. Monthly data for four phosphate products for the period 1980 through 1985 are used to implement the approach empirically. For three of the four products considered, the empirical results suggest that there is a world market.

Kwoka’s Mergers, Merger Control, and Remedies: Rejoinder to Kwoka

John Kwoka’s Mergers, Merger Control, and Remedies is a meta-analysis of “retrospective�? academic studies of consummated mergers and other horizontal arrangements. Based on this meta-analysis, Kwoka strongly criticizes federal enforcement policies, claiming that the agencies permit far too many anticompetitive mergers to go unchallenged, and are far too willing to accept remedies that fail to prevent a significant loss of competition. Kwoka claims further that this excessive leniency is culmination of a trend reflecting deliberate policy choices made over the last several decades. In a forthcoming critique, Vita & Osinski challenge Kwoka’s analysis and his conclusions, identifying serious flaws in the size, construction, and composition of his sample, and in the statistical analysis of the data drawn from that sample. In a published response to Vita & Osinski, Professor Kwoka offers a number of objections and counter-arguments. In this rejoinder, I respond to Professor Kwoka.