American Economic Journal: Economic Policy
no. 1, February 2010
Prior studies suggest that with elastically supplied inputs free entry
may lead to an inefficiently high number of firms in equilibrium.
Under input scarcity, however, the welfare loss from free entry is
reduced. Further, free entry may increase use of high-quality inputs,
as oligopolistic firms underuse these inputs when entry is constrained.
We assess these predictions by examining how the 1996
repeal of certificate-of-need (CON ) legislation in Pennsylvania
affected the market for cardiac surgery in the state. We show that
entry led to a redistribution of surgeries to higher quality surgeons,
and that this entry was approximately welfare neutral. (JEL I11, L13)
Cutler, David M., Robert S. Huckman, and Jonathan T. Kolstad.
"Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery."
American Economic Journal: Economic Policy,
Analysis of Health Care Markets
Oligopoly and Other Imperfect Markets