Competition and Quality in a Mixed Duopolistic Long-Term Care Market

We investigate a duopolistic long-term care market with uncertainty using a Hotelling-type spatial competition model where care providers decide the quality of the care to attract patients. We deal with three types of competition structures: (i) a duopoly with private nonprofit (NP) providers, (ii) a mixed duopoly with an NP and a private for-profit (FP) provider, and (iii) a duopoly with FP providers. We show that the equilibrium levels of quality in the mixed duopolistic market are higher than those in the NP duopoly and lower than those in the FP duopoly. Furthermore, in the mixed duopolistic market, while information improvement for the revision of the reimbursement system increases the quality levels of both providers, the effect of the information improvement in helping patients choose their care provider on the quality depends on the variance of the perceived quality.