Abstract

In this paper, we employ three simple theoretical models of nonprofit hospitals to investigate equilibrium behavior when hospitals compete. Utilizing a differentiated Bertrand model, we examine how prices, quantity of patients served, service to the uninsured, and quality of care are affected as nonprofits place more weight on profit maximization. We find that the specification of the nonprofit motive greatly impacts the results. When the nonprofit motive is maximizing output, prices rise for both hospitals as the nonprofit moves away from its nonprofit motive. However, if the nonprofit cares about serving the uninsured, prices in the market fall. Finally, when hospitals compete on price and quality, more emphasis on profits results in an increase in price at the for-profit hospital and a decrease in price at the nonprofit hospital. These results suggest that the importance of the nonprofit motive has been underestimated and should be further investigated.