Previous studies by the investigators have found that average costs per admission and per patient day are substantially higher in hospitals operating in more competitive local markets than in hospitals operating in less competitive markets. The findings, based on data from the universe of U.S. hospitals in 1972 and 1982, are remarkable in light of the standard prediction that competition will result in lower prices and ultimately in less costly methods of production. One potential explanation of these findings could be that hospitals in less competitive environments are better able to hold down the cost of nursing labor than hospitals elsewhere. This study shall examine the influence of the number of competing hospitals within the local area on nurse wage levels, using longitude and latitude coordinates of all U.S. hospitals as the basis for constructing market measures. This approach shall allow the observed correlation between market structure and costs to be disaggregated into that part due to higher labor costs and that part due to other causes, including increased use of costly medical technologies.
