Abstract
Mixed markets for healthcare, where public hospitals compete alongside private ones, are widespread, however, evidence of their desirability is inconclusive. This study, accounts for the observed differences in providers’ objectives and patients’ preferences in the market for hospital care through a spatial competition model with a public provider at the center. We show that a mixed market may be the welfare maximizing choice when some conditions are met; however, we highlight the potential trade-off between quality and other welfare measures. Policymakers that want to introduce competition should try to sustain patient bias for public provision since it increases the average quality of care. They may also consider monopoly franchises to redistribute benefits when mixed markets increase the profit of private providers. Profit retention can also increase quality, but privatization must be partial to maintain the value of public supply.