EXCLUSIONARY EQUILIBRIA IN HEALTH-CARE MARKETS

We have demonstrated that when providers of health insurance are perce ived to be differentiated by consumers, circumstances may arise under which they find it advantageous to restrict the set of health-care pro viders that they approve to their customers. Even if all health-care p roviders are equally qualified and efficient, payers may choose to con tract with a selected subset of them in order to secure more favorable contract terms. Moreover, in a concentrated health-care market that c onsists of two health insurance companies (payers) and two health-care providers (hospitals), both payers may choose to contract with only o ne of the hospitals while excluding the other completely from the mark et. When consumers' valuation of an extended choice of providers is sm all in comparison with the extent of differentiation that exists betwe en the payers, such an exclusionary outcome is the unique equilibrium of the game.