CSR impact on hospital duopoly with price and quality competition

This paper investigates the impact of corporate social responsibility (csr) on hospital duopoly with price and quality competition. a csr hospital is defined in this paper that cares about not only the profit but also the patient benefit. we start our analysis by establishing a two-stage hotelling model with and without csr. results indicate that privatization mechanism may not be the best way of improving medical quality. competition between hospitals with zero-csr would lower the equilibrium qualities compared to the first-best level. so the coexistence of a public (more accurately,partial public) and a private hospital might be more efficient than a private-private hospital duopoly. during the competition with csr in price and quality,social welfare level acts in accordance with an inverted u-shaped trajectory as csr degree increases. the main reason lies in tha fact that optimal degree of csr is determined by the trade-off between the benefit of quality improvement and the cost of quality investment. numerical simulation shows that the optimal degree of csr is less than a third. © 2014 youguang xu.