This paper uses origin‐destination data to define geographic local hospital markets in large metropolitan statistical areas (MSAs). Results support past findings of service rather than price competition, with negative‐cost Herfandahl‐Hirschman indexes relationships at the market level (and sub‐MSA level) and with profit margins negatively related to hospital market competition. The effects of total (direct plus indirect) market competition are unchanged between 1983 and 1988, precisely estimated, robust to estimation techniques, and unaffected by whether the number of direct competitors is included as an explanatory v