Abstract

Quality and the costs of health care are of concern among patients. Differing from previous research into hospital competition, this article captures the impact of price subsidy of public hospitals on the quality of private hospitals, considering both horizontal and vertical product differentiation by employing a two-stage dynamic game under Cournot and Stackelberg competition. Firstly, the results of this study indicate that medical reimbursement of public hospitals has stimulating effects on the quality of private hospitals and the improvement of quality is related to the degree of hospital competition. Second, the quality of health care and patients’ surplus and social welfare are the highest under Stackelberg competition if the public hospital is the leader while the private hospital is the follower. Finally, the demand for health care rises with the price subsidy of public hospitals. These conclusions have significant policy implications for health care system reform, especially for China.

Authors and Affiliations