Generalized Insurer Bargaining

Abstract

We incorporate repeated interaction and limits on the number of simultaneous negotiations by the same insurer into the standard multi-lateral insurer-hospital Nash-In-Nash (NiN) bargaining model. This approach is motivated by our finding that under common assumptions, the NiN model predicts a market breakdown with sufficiently high hospital bargaining power. In our proposed model all hospitals that increase surplus join the insurer network. Our generalized model can be estimated as in Gowrisankaran et al. (2015) with one additional parameter -- the players' discount factor. If players are completely impatient, the estimation outcome is the same in both models. We identify the differences in estimation results between the two models and show that mergers that would be approved using the NiN model may be rejected using the general model.