Health insurance and imperfect competition in the health care market

We show that when health care providers have market power and engage in Cournot competition, a competitive upstream health insurance market results in over-insurance and over-priced health care. Even though consumers and firms anticipate the price interactions between these two markets – the price set in one market affects the demand expressed in the other – Pareto improvements are possible. The results suggest a beneficial role for Government intervention, either in the insurance or the health care market