Does IT Enable Collusion or Competition: Examining the Effects of IT on Service Pricing in Multimarket Multihospital Systems

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Publication History

Received: March 11, 2020
Revised: March 31, 2021; April 6, 2022
Accepted: December 4, 2022
Published Online as Articles in Advance: November 30, 2023
Published Online in Issue: December 1, 2023

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In the U.S., multihospital systems (MHSs) charge significantly higher prices for hospital services than stand-alone hospitals. Rivalry restraint theory suggests that MHS with multimarket contact (MMC) can tacitly collude and mutually forebear from price competition to keep their prices above competitive levels. We posit that the success of such MMC-induced rivalry restraints (the truce) is affected by two conflicting roles of IT at the corporate level and market unit levels, respectively. The corporate parent seeks to standardize IT applications enterprise-wide to coordinate market units as a means of jointly implementing the rivalry restraint strategy and keeping prices high enterprise-wide. However, market units, i.e., the member hospitals of MHS clustered in geographic patient markets, face competitive pressures to reduce their service costs. Market units seek to use differentiated IT applications to achieve cost reductions, which then fuel price competition in local markets, jeopardize the sustainability of the truce, and weaken the enterprise-wide price effects of the corporate parent’s rivalry restraint strategy. In a longitudinal study of 195 multihospital systems in the U.S. in the 2005-2013 time period, we found support for these ideas. The corporate-wide standardization of the operational IT of MHS complements the rivalry restraint strategy to increase enterprise-wide prices. Market units’ use of differentiated analytical IT reduces costs in local markets and weakens the price effects of the rivalry restraint strategy. The study advances IS research and practice by theorizing how the corporate-level and the market unit-level IT of a multi-unit, multimarket (MUMM) organization can have opposing moderating effects on the link between MMC and the average prices charged by the MUMM organization.

Additional Details
Author Kui Du and Hüseyin Tanriverdi
Year 2023
Volume 47
Issue 4
Keywords Tacit collusion, rivalry restraint, multimarket competition, multi-unit multimarket firm, enterprise-wide coordination, information technology, data analytics, multihospital health system, process of care quality, service prices
Page Numbers 1425-1454
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