Does price disclosure promote competition in private MRI markets? A difference-in-differences analysis.

backgroundIn Finland’s private health care markets, a lack of price transparency has made price shopping difficult for consumers in the past. To address this issue, two distinct online price comparison tools were introduced. Economic theory and empirical research suggest that increasing price transparency can lower prices, but the impact depends on market conditions and the design of price disclosure. This paper examines the effect of these two distinct price disclosures on the prices of private magnetic resonance imaging (MRI) in Finland.

methodsWe utilize comprehensive administrative data from the National Health Insurance of Finland, which include all reimbursed procedures and prices in the private sector from 2008 to 2017. We employ a difference-in-differences approach to estimate the causal effects of price disclosures. Additionally, we use a market concentration index to control for the ex ante level of competition and explore whether market concentration is associated with the price effects.

resultsWe found that only the second price disclosure reduced MRI prices, with provider prices lowering by 5.2% and market prices by 10.6% relative to those of the control group. The effects varied across regions and time: the provider price effect became statistically insignificant after a year, whereas market prices reached a statistically significant reduction of 12% until the end of the study period. The effect was also stronger for concentrated markets, suggesting that price transparency inhibits companies’ ability to exert monopoly power.

conclusionsThe results align with those of previous studies, indicating that competition can be promoted through price transparency and that information disclosure is more effective when baseline market performance is low. As MRI services are highly standardized, it is unlikely that providers lower prices by compromising quality. However, a definitive conclusion on consumer welfare gains cannot be drawn. The different effects of the two price disclosures highlight the importance of design and market conditions in promoting competition and gaining savings. The first price disclosure failed, as it did not reveal the relevant price information sufficiently, and ex ante market conditions lowered the price sensitivity of both the consumers and providers.