Nathan E. Wilson

The Quality of Institutions and Organizational Form Decisions: Evidence from Within the Firm

In many retail and service sectors, firms have to establish a physical presence in a geographic market to access customers there. In countries where the quality of institutions is low, this can put assets at risk. We use data on the operations of a multinational, multibrand hotel company to show that in environments where local institutions are weaker—as proxied mainly by the World Banks Checks index—the company eschews direct ownership. Rather than increasing its reliance on franchising, as predicted by some models, the company relies more on another form of organization commonly used in this industry, namely management contracts. We explain these patterns by emphasizing how the quality of the institutional environment affects the cost of using equity-based organizational forms, per arguments in the current literature, but also the cost of enforcing the terms of franchise contracts.

Local Market Structure and Strategic Organizational Form Choices: Evidence from Gasoline Stations

An extensive literature shows that agency issues and transaction costs impact vertical integration decisions. Another mature literature indicates that market structure influences competitive behavior. Less consideration has been given to how vertical integration and market structure may interact. I address this gap by focusing on the potential for moral hazard arising from intra-firm competition. Focusing on retail gasoline sales, I argue that when multiple stations share a common brand in a market, a vertically separated station has an incentive to deviate from the cooperative strategy that the brand-owning refiner would prefer. I empirically test this prediction using rich data, and find evidence of both such moral hazard and the desire to avoid it.

Physician Market Structure, Patient Outcomes, and Spending: An Examination of Medicare Beneficiaries

OBJECTIVE To understand the impact of changes in physician market structure on clinical outcomes and health care utilization. DATA SOURCES 2005-2012 Medicare fee-for-service claims and enrollment data. STUDY DESIGN We consider the effect of cardiology market structure on utilization and health outcomes for four patient populations. We estimate the risk-adjusted impact of competition using multivariate regression models. PRINCIPAL FINDINGS The study finds that an increase in consolidation leads to statistically and economically significant increases in negative health outcomes. For example, we find that moving from a zip code at the 25th percentile of cardiology market concentration to one at the 75th percentile would be associated with 5 to 7 percent increases in risk-adjusted mortality for three of the sample populations. We also found higher expenditures in more concentrated markets. For example, moving from a zip code at the 25th percentile of cardiology market concentration to one at the 75th would be associated with 7 to 11 percent increases in expenditures, depending on sample population. CONCLUSIONS Our estimates indicate that increases in cardiology market concentration are associated with worse health outcomes and higher health care expenditures. Some effects may be attributed to vertical as well as horizontal changes.

For-profit status and industry evolution in health care markets: evidence from the dialysis industry

Over the last 25 years, for-profit facilities have supplanted non-profits as the modal providers of hemodialysis treatment to American sufferers of end-stage renal disease. To understand what may underpin this dramatic change in industry structure, this paper uses a dynamic equilibrium model to develop intuition about how variation in different economic primitives might affect the evolution of industry structure. Subsequently, the paper exploits a comprehensive 20 year panel dataset to examine entry, exit, and output patterns in relation to changes in demand and local market structure. Examining the empirical results in light of the models comparative statics suggests that for-profit firms enjoy a significant advantage in static competition, perhaps as a result of lower marginal costs. By comparison, I find negligible evidence that for-profit facilities have lower entry costs. Interestingly, the data also suggest that competition among dialysis clinics may be differentiated.

The Importance of Substitution in Assessing Health Care Provider Mergers

As the number of challenged health care mergers has risen, so too has interest in the tools used to assess market power in health care markets. Some have expressed concern about the differences between the analytical methodology used in healthcare markets and the methods commonly used in other industries. We argue that, whatever the market, antitrust analysiss underlying goal should be to understand substitution patterns between the merging parties. The methods used to address the unique institutional features of healthcare markets should wax (or wane) with their ability to address that fundamental issue. Although the suite of tools used by enforcers to assess the consequences of health care mergers remains a work in progress, at present, analyses that employ diversion ratios and willingness-to-pay capture substitution patterns better than alternatives and represent the state of the art.