Market concentration, supply, quality and prices paid by Local Authorities in the English care home market

We investigate the impact of conditions favouring high market concentration (C) on supply, price and quality in the local care home market for older people in England. The instrumental variables approach is often used to address the ‘endogeneity’ of C. We argue that this approach will not identify the underlying market structure and that it is implausible to claim that a causal impact of C on outcomes can be achieved in this way. By assuming that the nature of the equilibrium in a local market is determined by the basic (exogenous) conditions of that market, we found a large and significant impact of these conditions that tend to favour high C on equilibrium supply (-32%) and prices (+23%), in particular in the market of residential (non-nursing) homes (-57% and +34%). The effect on quality is smallest and significant only for the non-nursing care home market (+10%). Results enable us to extract relevant policy messages for English LAs’ abilities to discharge their responsibilities to promote an adequate supply of care home places at affordable costs and sufficient quality.