Generalized Insurer Bargaining

Intermediaries may bargain with several upstream providers on behalf of consumers who do not directly pay for consumption, such as an insurer bargaining with hospitals. We show that the common Nash- in-Nash solution, while useful for estimation, can predict Nash overpricing: prices that exceed the treatment’s value. We develop an alternative model based on repeated interaction. When used for estimation, our model maintains the attractive features of the Nash-in-Nash and includes it as a special case. The two models differ in important ways. In particular, mergers that would be approved using Nash-in-Nash may be rejected using the general model.

Keywords: bargaining; health economics; insensitivity to prices; health insurance; hospital prices

JEL Classification: L13, L14, I11, L40

Suggested Citation: Suggested Citation

Arie, Guy and Grieco, Paul L.E. and Rachmilevitch, Shiran, Generalized Insurer Bargaining (July 20, 2017). Simon Business School Working Paper No. FR 15-30, Available at SSRN: https://ssrn.com/abstract=2677394 or http://dx.doi.org/10.2139/ssrn.2677394