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Abstract
Intermediaries across many markets must repeatedly choose upstream partners under imperfect information about partner quality, yet how such supplier networks form in practice is not well understood. We study this question in the setting of physician referrals, where primary care physicians (PCPs) serve as triage agents who refer patients to specialists for care outside their own scope. Using the universe of 2010–2018 Medicare fee-for-service claims across three specialty areas with distinct institutional settings, namely orthopedic surgery, cardiology, and dermatology, we estimate a network-formation model with two-sided fixed effects among PCPs who relocate to new markets and must build their referral networks from scratch. Sharing a common practice is the dominant determinant of initial referral links in all three specialties, followed by geographic proximity and relatively minor demographic homophily. The role of organizational affiliation attenuates over the first four post-move years. Because the setting allows us to measure specialist quality through patient outcomes, we further assess the implications for patient care of these matching patterns and find that the quality losses from convenience-driven referrals are modest.