The effect of mergers on firms' costs: Evidence from the HMO industry

John Engberg, Douglas Wholey, Roger Feldman, Jon B. Christianson

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

We examine the effect of mergers on firms' costs, using a national data set that contains information on both pre- and post-merger costs for firms in the Health Maintenance Organization (HMO) industry. By utilizing data on all HMOs that operated in the United States from 1985 to 1997, we observe enough mergers to obtain estimates of both short-run and relatively permanent merger effects. On average, we do not find evidence that mergers allowed HMOs to realize greater economies of scale or that mergers improved efficiency by shifting the cost function. On the other hand, mergers between HMOs that produce Medicare and other products are likely to create dis-economies of scope that increase costs.

Original languageEnglish (US)
Pages (from-to)574-600
Number of pages27
JournalQuarterly Review of Economics and Finance
Volume44
Issue number4
DOIs
StatePublished - Sep 1 2004

Keywords

  • Costs
  • Efficiency
  • Market structure
  • Mergers

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