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The Relationship Between Pricing Behavior and Ownership Type in the Wisconsin Nursing Home Industry, 1984-1995 (WP-02-25)

Jeffrey P. Ballou

Previous studies have attributed observed differences in markups between for-profit and not-for-profit firms to differences in organizational objectives, without considering potential differences in market power. Using data on Wisconsin nursing homes, I estimate models of price-setting behavior that account for the influence of both market power and organizational objectives. I find that not-for-profits charge lower markups than those predicted by a model of profit maximization. Among not-for-profit organizations, religious nonprofits charge the highest markups and government homes the lowest. These results are robust to alternative competitive hypotheses. Implications of these findings for both theory and public policy are discussed.
Jeffrey P. Ballou, Department of Economics, Northwestern University

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