Market structure elements: the case of California nursing homes.

This article empirically examines how various elements of market structure affect the pricing behavior and profitability of individual nursing homes in California. Market structure elements include seller concentration, the concentration of nursing homes organized on a nonprofit basis, and concentration of nursing homes organized on an independent basis in the market area. It is hypothesized that the latter two variables affect the nature of competition in the market area. Using data for year 2000, the empirical results suggest that both the private payer price and Lerner index are higher in nursing home market areas with increased seller concentration and concentration of secular, not-for-profit nursing homes. Neither price nor profitability is influenced by the market concentration of independent nursing homes, however. All in all, the study suggests that the typical California nursing home possesses some degree of market power, even in the absence of a state certificate of need law.