Competition, information, and quality: Evidence from nursing homes

Economic theory suggests that competition and information can both be important for product quality, and yet evidence on how they may interact to affect quality is sparse. This paper estimates the impact of competition between nursing homes on their quality, and how this impact varies when consumers have better access to information. The effect of competition is identified using exogenous variation in the geographical proximity of nursing homes to their potential consumers. The change in information transparency is captured by the launch of the Five-Star Quality Rating System in 2009, which improved access to the quality information of nursing homes. We find that while the effect of competition on nursing home quality is generally rather limited, this effect becomes significantly stronger with increased information transparency. The results suggest that regulations on public quality reporting and on market structure are policy complements, and should be considered jointly to best improve quality.