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This article identifies factors influencing the degree of competition in the nursing home market. Using data obtained from the 1987 Medicare and Medicaid Automated Certification Survey, the relationship between competition and structural and process measures of quality (registered nurse staffing and resident care management practices) is estimated by weighted two-stage least squares regression. Results suggest that the quality effects of indicators of competition vary and that market concentration may not diminish quality-based competition. Proposals for nursing home reimbursement reform are evaluated with respect to their incentives for enhancing quality, particularly in the Medicaid market segment.