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2012 Conference Presentation

Economics EnglandUnited Kingdom

7 September 2012

The impact of competition on quality and prices in the English nursing homes market

Stephen Allan, PSSRU, University of Kent, United Kingdom
Julian Forder, London School of Economics, United Kingdom


This study assesses the impact of competition on both price and quality in the English care/nursing homes market. We develop a theoretical model that suggests that publicly-funded and commissioned homes might respond differently to competition in setting quality than privately-funded homes.

The analysis uses the population of 10,000 care homes in England as registered with the regulator, the Care Quality Commission (CQC). Competition is measured for each home according to number of competitor beds within range, weighted for both their distance and travel time. Quality is measured using the home’s CQC quality rating. Homeaverage prices are matched from an industry database. To account for the potentially endogenous relationship between competition and both prices and quality, we use an instrumental variables approach. Controls for supply side factors, demand for care homes, and home-level service cost characteristics are included.

Results suggest that price and quality are endogenous with competition. Competition has a negative effect on both price and quality. Further analyses suggested that the negative quality effect worked through the effect on price – higher competition reduces revenue which pushes down quality. However, in the privately-funded segment of the market there was some indication of a neutral or even a positive impact of competition on quality.


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