This paper quantiﬁes the welfare consequences of the medical arms race in the context of MRI adoption. We build and estimate a model of the vertical structure of the industry where MRI manufacturers sell high- and low-quality MRIs in the upstream market, whereas medical institutions provide medical services to patients in the downstream market. Simulation results suggest that the current free-entry policy in Japan leads to excess MRI adoption. Furthermore, regulating medical institutions’ MRI adoption, taxing MRI purchases, or softening competition among MRI manufacturers would increase social welfare substantially by mitigating the business-stealing eﬀect in the downstream market.
Vertical relationship, Free entry, MRI industry, Healthcare market.
ONISHI, Ken; WAKAMORI, Naoki; HASHIMOTO, Chiyo; and BESSHO, Shun-ichiro.
Free entry and social inefficiency in vertical relationships: The case of the Japanese MRI industry. (2016). 1-39. Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/2068
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