Substitution and Complementarity Between Online and Offline Healthcare
Abstract: Online healthcare can be a substitute for traditional offline healthcare in treating patients with minor illnesses and be a complement to offline healthcare in treating patients with major illnesses. This paper studies hospitals' choices of online and offline qualities under quality competition, and how online and offline qualities interactively affect each other under two regimes. First, offline qualities are exogenously determined; second, offline qualities are endogenously chosen by hospitals. In symmetric equilibria, a hospital's offline and online qualities may be substitutes or complements, in the sense that the online and offline qualities may be negatively or positively correlated, correspondingly. In contrast to the conventional wisdom, a hospital with high offline quality always chooses a lower online quality than the low-offline-quality hospital. Under the case of endogenous offline quality, hospitals prioritize their investments in offline divisions and choose the highest offline quality in equilibrium. This paper also presents rich policy implications and empirical implications.