Designing Quasi Markets: The Dynamics of Competition and Consumer Choice in Danish Eldercare

Quasi-markets, where publicly funded services may be provided by private firms,
are increasingly prevalent across various sectors in Western countries. This paper focuses
on the quasi-market for eldercare in Denmark, exploring two contrasting quasi
market models: the tendering model, where local governments control provider selection
through competitive bidding, and the approval model, which allows any qualified
firm to enter the market. Exploiting institutional variation across municipalities, we
analyze how these models impact market competition, consumer choice, and inequality.
The analysis shows that the tendering model favors larger firms, reduces the number of
suppliers, decreases competition, and leads to an increased reliance on public providers.
Unlike the approval model, however, the tendering model introduces price competition
in the selection of providers. Higher-educated and higher-income individuals prefer
private providers relatively more under both models, but the tendering model causes
those with lower education and income to shift disproportionately to public providers,
exacerbating socioeconomic inequalities and influencing consumer behavior.