DP14005 Entry decisions and asymmetric competition between non-profit and for-profit homes in the long-term care market
Mostly due to population aging, the demand for long-term care (LTC) services is growing strongly. Historically, non-profit nursing homes dominated the German LTC market, but the recent entry wave was tilted towards for-profit competitors. Using a rich administrative dataset on all LTC facilities in Germany, we examine strategic interaction between these two ownership types in a static entry model. The estimates of competitive effects imply that non-profit and for-profit homes are substitutes, but competition is much stronger within-type, suggesting that they provide differentiated products. For-profit homes in particular act as if they operate in a different market segment, but over time their entry behavior has converged to that of the more established non-profits. Counterfactual simulations of proposed changes in government policy suggest a large impact on the fraction of markets that remain unserved or only served by a single type.
