Organizational Form and Niche Overlap: The Dynamics of Surgery Center Entry and Exit

Michael G. Housman, University of Pennsylvania

Abstract

The literature on organizational niche suggests that competition between firms that have overlapping niches tends to elevate exit risks. Thus, firms tend to enter markets that are relatively uncrowded in order to minimize direct competition with other firms. Although this research has focused on organizational “micro-niches,” it has not been applied to organizational populations occupying different “macro-niches” and possessing different organizational forms. We apply niche overlap theory to the market for outpatient surgical procedures in order to compare the entry and exit patterns of firms in a mature population of general hospitals to those of firms within a growing population of ambulatory surgery centers (ASCs). By manipulating patient-level datasets from the state of Florida, we were able to measure competition, market demand, and firm entry/exit with a high level of precision. We broke down our explanatory variables by facility type (ASC vs. hospital), and utilized Cox proportional hazard and negative binomial models to evaluate the impact of niche density on market entry/exit among ASCs and hospitals.

Although hospitals tend to exit markets with high levels of ASC density, ASCs appear to be unaffected by the presence of nearby hospitals. This finding confirms the presence of asymmetric competition between these two organizational forms since specialized organizational forms representing “focused factories” are unaffected by generalist forms while generalists are hurt by the presence of competing specialists. We also find that hospitals display low entry rates in markets with overlapping ASCs while ASCs display high entry rates in markets with overlapping ASCs. These results are consistent with the notion that firms in growing populations tend to seek out crowded markets as they compete to occupy the most desirable market segments while firms in mature populations avoid direct competition as they compete on the basis of efficiency. Taken together, our results extend niche overlap theory to settings in which two different organizational forms compete and demonstrate that several key predictions are actually reversed in the case of these industries.