Quality competition, location choice, and ownership conversion in the healthcare market

This study analyzes the impact of ownership conversion on hospital outcomes, applying a Hotelling model with a private hospital operating between two public hospitals. The hospitals compete on treatment quality in the short term and can change locations in the long term. We show that privatization (municipalization) deteriorates (improves) the treatment quality of both types of hospitals in the short term; however, privatization (municipalization) can improve (deteriorate) the quality of both types of hospitals in the long term because changes in hospital locations in the long term alter the quality competition environment. We also analyze a case wherein a public hospital operates between two private hospitals as an extension. Our study is unique in that it endogenizes the location choice of the hospital, which previous studies have largely overlooked.