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Transparency and Negotiated Prices: The Value of Information in Hospital-Supplier Bargaining

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  • Matthew Grennan
  • Ashley Swanson
Abstract
Using a detailed dataset of hospitals' purchase orders, we find that information on purchasing by peer hospitals leads to reductions in the prices hospitals negotiate for supplies. Identification is based on staggered access to information across hospitals over time. Within coronary stents, reductions are concentrated among hospitals previously paying relatively high prices and for brands purchased in large volumes, and are consistent with resolving asymmetric information problems. Estimates across a large number of other important product categories indicate that the effects of information are largest in both absolute and relative terms for physician preference items (PPIs). Among PPIs, high-price, high-quantity hospital-brand combinations average 3.9 percent savings, versus 1.6 percent for commodities.

Suggested Citation

  • Matthew Grennan & Ashley Swanson, 2016. "Transparency and Negotiated Prices: The Value of Information in Hospital-Supplier Bargaining," NBER Working Papers 22039, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22039
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    Cited by:

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    2. Daiqiang Zhang, 2021. "Testing Passive Versus Symmetric Beliefs In Contracting With Externalities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(2), pages 723-767, May.
    3. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    4. Martinez-Carrasco, José & ConceiçaÞo, Otavio & Dezolt, Ana Lúcia, 2023. "More Information, Lower Price? Access Market-based Reference Prices and Gains in Public Procurement Efficiency," IDB Publications (Working Papers) 12754, Inter-American Development Bank.
    5. Itai Ater & Oren Rigbi, 2018. "The Effects of Mandatory Disclosure of Supermarket Prices," CESifo Working Paper Series 6942, CESifo.
    6. de Leverano, Adriano & Baulia, Susmita, 2023. "A new indicator to implement effective spending review policies in the public procurement for standardized goods," ZEW Discussion Papers 23-063, ZEW - Leibniz Centre for European Economic Research.
    7. Montag, Felix & Sagimuldina, Alina & Winter, Christoph, 2024. "When does mandatory price disclosure lower prices? Evidence from the German fuel market," Working Papers 344, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    8. Stuart V. Craig & Matthew Grennan & Ashley Swanson, 2021. "Mergers and marginal costs: New evidence on hospital buyer power," RAND Journal of Economics, RAND Corporation, vol. 52(1), pages 151-178, March.
    9. Sorabh Tomar, 2023. "Greenhouse Gas Disclosure and Emissions Benchmarking," Journal of Accounting Research, Wiley Blackwell, vol. 61(2), pages 451-492, May.
    10. David P Byrne & Leslie A Martin & Jia Sheen Nah, 2023. "Price Discrimination by Negotiation: a Field Experiment in Retail Electricity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 137(4), pages 2499-2537.
    11. Olivier Bochet & Manshu Khanna & Simon Siegenthaler, 2024. "Beyond Dividing the Pie: Multi-Issue Bargaining in the Laboratory," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(1), pages 163-191.
    12. Matthew Backus & Thomas Blakee & Brad Larsen & Steven Tadelis, 2020. "Sequential Bargaining in the Field: Evidence from Millions of Online Bargaining Interactions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 135(3), pages 1319-1361.
    13. Kjellberg, Hans & Sjögren, Ebba & Krafve, Linus Johansson, 2023. "The functions of known to be inaccurate prices in markets: A cross-country comparison of pharmaceutical list pricing," Journal of Business Research, Elsevier, vol. 167(C).
    14. Clark, Robert & Coviello, Decio & de Leverano, Adriano, 2021. "Centralized procurement and delivery times: Evidence from a natural experiment in Italy," ZEW Discussion Papers 21-063, ZEW - Leibniz Centre for European Economic Research.
    15. David P Byrne & Leslie A Martin & Jia Sheen Nah, 2022. "Price Discrimination by Negotiation: a Field Experiment in Retail Electricity [“Redistribution through Markets,”]," The Quarterly Journal of Economics, Oxford University Press, vol. 137(4), pages 2499-2537.
    16. Jeffrey Clemens & Joshua D. Gottlieb & Tímea Laura Molnár, 2015. "The Anatomy of Physician Payments: Contracting Subject to Complexity," NBER Working Papers 21642, National Bureau of Economic Research, Inc.
    17. De Leverano, Adriano & Coviello, Decio & Clark, Robert, 2023. "Centralized Procurement and Delivery Times: Evidence from a Natural Experiment in Italy," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277589, Verein für Socialpolitik / German Economic Association.
    18. Clarissa Lotti & Giancarlo Spagnolo, 2022. "Indirect Savings from Public Procurement Centralization," CEIS Research Paper 532, Tor Vergata University, CEIS, revised 01 Feb 2022.
    19. Jiarui Liu, 2021. "Sequential Search Models: A Pairwise Maximum Rank Approach," Papers 2104.13865, arXiv.org, revised Nov 2021.
    20. Stephen McCarthy & Damien Sheehan‐Connor, 2022. "The effect of hospital‐physician integration on hospital costs," Health Economics, John Wiley & Sons, Ltd., vol. 31(11), pages 2333-2368, November.
    21. Aidan R. Vining, 2016. "What Is Public Agency Strategic Analysis (PASA) and How Does It Differ from Public Policy Analysis and Firm Strategy Analysis?," Administrative Sciences, MDPI, vol. 6(4), pages 1-31, December.
    22. Riccaboni, Massimo & Swoboda, Torben & Van Dyck, Walter, 2022. "Pharmaceutical net price transparency across european markets: Insights from a multi-agent simulation model," Health Policy, Elsevier, vol. 126(6), pages 534-540.

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    More about this item

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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