A Relational Approach to Measuring Competition Among Hospitals


  • Min-Woong Sohn

This research was supported in part by a grant from the Agency for Health Care Policy and Research (R03 HS08002-01). The author thanks Edward O. Laumann, Larry M. Manheim, Willard Manning, Thomas D'Aunno, Michael Koetting, Marshall Chin, Jack Zwanziger, Gloria J. Bazzoli, David Meltzer, Matthew Davis, and Marie Danielle Swartwood for their help and suggestions. The comments by Harold Luft and two anonymous reviewers are also gratefully acknowledged.

Address correspondence to Min-Woong Sohn, Ph.D., Assistant Professor, Department of Health Studies, The University of Chicago, 5841 South Maryland Avenue, MC2007, Chicago, IL 60637. This article, submitted toHealth Services Research on June 3, 1999, was revised and accepted for publication on March 5, 2001.


Objective. To present a new, relational approach to measuring competition in hospital markets and to compare this relational approach with alternative methods of measuring competition.

Data Sources. The California Office of Statewide Health Planning and Development patient discharge abstracts and financial disclosure files for 1991.

Study Design. Patient discharge abstracts for an entire year were used to derive patient flows, which were combined to calculate the extent of overlap in patient pools for each pair of hospitals. This produces a cross-sectional measure of market competition among hospitals.

Principal Findings. The relational approach produces measures of competition between each and every pair of hospitals in the study sample, allowing us to examine a much more ``local'' as well as dyadic effect of competition. Preliminary analyses show the following: (1) Hospital markets are smaller than thought. (2) For-profit hospitals received considerably more competition from their neighbors than either nonprofit or government hospitals. (3) The size of a hospital does not matter in the amount of competition received, but the larger hospitals generated significantly more competition than smaller ones. Comparisons of this method to the other methods show considerable differences in identifying competitors, indicating that these methods are not as comparable as previously thought.

Conclusion. The relational approach measures competition in a more detailed way and allows researchers to conduct more fine-grained analyses of market competition. This approach allows one to model market structure in a manner that goes far beyond the traditional categories of monopoly, oligopoly, and perfect competition. It also opens up an entirely new range of analytic possibilities in examining the effect of competition on hospital performance, price of medical care, changes in the market, technology acquisition, and many other phenomena in the health care field.