Does Ownership Matter in the Selection of Service Providers? Evidence From Nursing Home Consumer Surveys

Abstract

This study considers the role of ownership in consumer choice of service providers in mixed-ownership industries. First, it analyzes theoretically consumer search in the face of severe asymmetric information about important service attributes in a market where nonprofit, for-profit, and local government providers coexist. Second, the article distinguishes between two consumer decision strategies, traditional search for information, and using ownership as a signal of quality. Third, the article analyzes an original data set about nursing homes and their customers (residents and their families). We found that (a) despite empirical evidence showing that nonprofit nursing homes are of higher quality, consumers who use ownership status in their search were more likely to choose for-profit organizations; (b) better educated consumers are more likely to choose nonprofit over for-profit organizations; (c) consumers who search more in-depth and who find information about nursing home lobbies less important for selection are more likely to choose homes that are nonprofit. The choice of local government–owned homes is based on a process that resembles weakly the process used to choose nonprofit homes more than for-profit homes.