Telemedicine competition, pricing, and technology adoption: Evidence from talk therapists

• Published in: International journal of industrial organization 2023-07, Vol.89, p.102956, Article 102956
• Main Author: Goetz, Daniel
• Format: Article
• Language: English
• Subjects: Competition; COVID-19; Digitization; Mental health; Price discrimination; Telemedicine
• ISSN: 0167-7187
• DOI: 10.1016/j.ijindorg.2023.102956

•I empirically study how the entry of telemedicine competitors affects healthcare providers in the market for psychotherapy.•Incumbents stop offering income-based discounts, but do not change baseline prices.•The effect is concentrated among high-quality providers, low-quality providers exit.•There is no effect of telemedicine competition on adoption of virtual care.•A price discrimination model with capacity constraints rationalizes the results. This paper examines how new telemedicine competitors affected incumbent health care providers during the first waves of COVID-19. Using data from the largest mental health provider search platform in Canada, I show that increased telemedicine competition in a market caused incumbent providers in that market to stop offering income-based discounts to patients. I isolate the causal effect of competition in a difference-in-differences framework, comparing providers before and after a supply shock on the platform that exogenously assigned some markets new telemedicine search results. I find that higher-quality providers are more likely to stop income-based discounts when facing new telemedicine entrants, while lower-quality providers are more likely to exit the platform, which is consistent with telemedicine providers competing for more price-sensitive patients. The results suggest that expanding telemedicine options had a heterogeneous effect on the affordability of care.