Market Dominance: How Firms Gain, Hold, or Lose It and the Impact on Economic Performance

By David I. Rosenbaum | Go to book overview

43 percent. Moreover, IBC in 1996 had more than 50 percent of its subscribers in its managed care plans.73 The dominance of BC permitted it to be slow to respond to competition. In fact, BCGP's holding company acquired another HMO (Delaware Valley HMO) at the end of 1986 as part of its strategy of responding to HMOs.74

Personal Choice was essentially a preferred provider organization, which meant that subscriber services were covered if obtained within the network of hospitals and physicians, but coverage was much more limited for services obtained in non-network facilities. Generally, the insurer, by restricting access to certain institutions, can obtain substantial discounts. To introduce its product, BCGP initiated "an aggressive and provocative" advertising campaign, which involved about $2.175 million over a six-month period in 1986.75 One BCGP commercial depicts a grief-stricken woman saying, "The hospital my HMO sent me to just wasn't enough. It's my fault."76

U.S. Healthcare responded to the advertising campaign by instituting legal action for, among other things, commercial disparagement and defamation. It also began its own advertising that involved expenditures of $1.255 million and continued through late February 1987. One of its advertisements was U.S. Healthcare's own attempt to play upon the fears of the consuming public. As solemn music plays, the narrator lists the shortcomings of Personal Choice while the camera pans from a Personal Choice brochure resting on the pillow of a hospital bed to distraught family members standing at bedside. The advertisement closes with a pair of hands pulling a sheet over the Personal Choice brochure.77


CONCLUSION

Blue Cross originally innovated the provision of health insurance and was the dominant finn firm. Given its monopoly power and non-profit status, it is perhaps not surprising that it was slow to respond to competition. However, BC was to some extent hampered by regulation and the requirement to act as the "insurer of last resort." Also, its association with hospitals contributed to its pricing and reimbursement policies, which created an opportunity for competitors to enter. When BC finally competed, it became a formidable opponent. In 1994 BC had 28 million subscribers in its managed care products, 43 percent of its total subscribers. (BC plans were even competing against other BC plans.) In 1996 BC was an important player in the market but certainly no longer dominant. Through "creative destructionism," once-dominant firms are displaced by newer firms offering new products.78


NOTES
1.
Sallyanne Payton and Rhoda M. Powsner, "Regulation Through the Looking Glass: Hospitals' Blue Cross and Certificate of Need", Michigan Law Review ( December 1980): 215.
2.
Statistics in this paragraph come from Sylvia A. Law, Blue Cross: What Went Wrong? ( New Haven, CT: Yale University Press, 1976), p. 6.

-190-

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Market Dominance: How Firms Gain, Hold, or Lose It and the Impact on Economic Performance
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Illustrations vii
  • 1 - Introduction 1
  • Notes 9
  • 2 - Dominance in the Oil Industry: Standard Oil from 1865 to 1911 11
  • Notes 33
  • 3 - Tobacco: Predation and Persistent Market Power 39
  • Notes 51
  • 4 - Alcoa and the U.S. Aluminum Industry 55
  • Notes 66
  • 5 - Dow Chemical and the Magnesium Industry 69
  • Notes 86
  • 6 - Eastman Kodak in the Photographic Film Industry: Picture Imperfect? 89
  • Notes 107
  • 7 - The Rise and Fall of Ford and General Motors in the U.S. Automobile Industry: A Tale Twice Told 109
  • Notes 126
  • 8 - The Rise and Fall of IBM 131
  • Notes 150
  • 9 - Microsoft 153
  • Notes 172
  • 10 - Blue Cross: Health Insurance 175
  • Notes 190
  • 11 - AT&T's Grand Design for Dominance in the Global Information Age 195
  • Notes 224
  • 12 - Conclusion 227
  • Notes 254
  • Bibliography 257
  • Index 267
  • About the Author 273
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