Objective To examine the impact of provider competition under global budgeting on the use of cesarean delivery in Taiwan. Data Sources/Study Setting (1) Quarterly inpatient claims data of all clinics and hospitals with birth‐related expenses from 2000 to 2008; (2) file of health facilities’ basic characteristics; and (3) regional quarterly point values (price conversion index) for clinics and hospitals, respectively, from the fourth quarter in 1999 to the third quarter in 2008, from the Statistics of the National Health Insurance Administration. Study Design Panel data of quarterly facility‐level cesarean delivery rates with provider characteristics, birth volumes, and regional point values are analyzed with the fractional response model to examine the effect of external price changes on provider behavior in birth delivery services. Principal Findings The decline in de facto prices of health services as a result of noncooperative competition under global budgeting is associated with an increase in cesarean delivery rates, with a high degree of response heterogeneity across different types of provider facilities. Conclusions While global budgeting is an effective cost containment tool, intensified financial pressures may lead to unintended consequences of compromised quality due to a shift in provider practice in pursuit of financial rewards.