Market Structure and Quality of Service: Investigating Oligopolies and the Quality of Nursing Home Care in California During The COVID-19 Pandemic

Quality-of-service outcomes in nursing homes are of great social and human importance. However, especially during the COVID-19 pandemic, consistently maintaining markets with high quality care has been a pervading issue in the American nursing home industry. Furthermore, the industry is strongly characterized by oligopolies, a market structure that literature indicates may be less compatible with quality service than competitive markets. With this paper, I aim to investigate the possible intersection of oligopolist market structures and the quality of nursing home care during the COVID-19 pandemic. I start by describing quality of care in nursing homes, particularly during the COVID-19 pandemic, contextualized by literature analyzing nursing home care quality and market structure. Then, I develop a model of profit-maximizing nursing home behavior using theories of oligopolist decision-making, rooted in the basis provided by both Cournot and Bertrand, informed by contemporary models describing the nursing home market. This model demonstrates an opposite correlation between the number of firms in a market and the quality of nursing home care. To test this prediction, I construct a 26-week panel dataset including nursing home attributes and facilities’ experiences with COVID-19, using data from California’s Agency of Health and Human Services, the California Department of Public Health, the Census Bureau, and the Centers for Medicare and Medicaid Services. Random effects and Hausman-Taylor estimations test the relationship between the number of nursing homes in a market and the outcome of COVID-19 outbreaks in nursing homes, a proxy for quality of care during the pandemic. The results indicate that market structure is not explanatory in understanding differences in quality of nursing home care during the COVID-19 pandemic