Discussion Papers 2016
CIRJE-F-1001 | "The Welfare Consequences of Free Entry in Vertical Relationships: The Case of the MRI Market" |
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Author Name | Onishi, Ken, Naoki Wakamori, Chiyo Hashimoto and Shun-ichiro Bessho |
Date | February 2016 |
Full Paper | |
Remarks | Revised in August 2016. |
Abstract |
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This paper quanties the welfare consequences of the medical arms race in the context of MRI adoption. We build and estimate a model of the vertical structure of the industry where MRI manufacturers sell high- and low-quality MRIs in the up- stream market, whereas medical institutions provide medical services to patients in the downstream market. Simulation results suggest that the current free-entry policy in Japan leads to excess MRI adoption. Furthermore, regulating medical institutions' MRI adoption, taxing MRI purchases, or softening competition among MRI manufacturers would increase social welfare substantially by mitigating the business-stealing effect in the downstream market. |
Keywords: Vertical relationship, Free entry, MRI industry, Healthcare market. |