The Market for Nursing Homes in Germany: a spatial competition approach

The German nursing home industry rapidly grows due to the permanent increase of people in need of long-term care, in particular. At the same time a large share of residents in German nursing homes is in need of social assistance. In a simple spatial competition model we show that the presence of people in need of social assistance increases prices of nursing homes. Bargaining between nursing homes and long-term care insurance companies and social assistance administration can restrain this price-enhancing effect. In addition, price negotiation may help to reach a social optimal number of nursing homes. Thus, our analysis also presents a rationale in favor of negotiations in nursing home markets from a welfare point of view.