The Two-Stage Model of Competition in Hospital Merger Analysis May be Due for an Update

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Cutting-edge economic theories and econometric methods are likely to play an increasingly important role in healthcare antitrust analysis. In recent hospital merger litigation, the FTC and courts have looked to the “two-stage model of competition” as a framework for evaluating competitive effects. While this model sometimes performs better than HHIs or other share-based indices, it has several limitations. New research and empirical findings highlight some of those limitations and demonstrate the existence of mechanisms that market participants can use to counter post-merger pricing increases. These findings suggest that cutting-edge modeling may need to extend beyond the basic two-stage construct.