1. Regulatory Spillover and Consumer Welfare: The Case of Pharmaceutical Market Exclusivity Policy (with Yang Zhang) [Link To Draft] (Submitted)
Abstract: This paper studies strategic spillovers of regulations intended for one particular market to other related markets and their implications for new product introduction and consumer welfare. We study the US pharmaceutical market, where market exclusivity is granted to the first over-the-counter drug, independent of patents for prescription drugs. Our paper shows that, due to the interplay of incentives in the prescription and the over-the-counter markets, the status-quo exclusivity policy reduces consumer welfare, as it causes many firms to delay entry into the over-the-counter market until prescription drug patents expire. In the counterfactual world, eliminating the exclusivity provision incentivizes firms to release the over-the-counter version earlier. However, it weakens firms’ incentives to make risky investments in R&D. An alternative policy that ties the over-the-counter drug exclusivity provision to prescription drug patent expiry dates preserves firms' R&D incentives while eliminating strategic incentives to delay, enhancing access to drugs and consumer welfare.
2. Unhealthy Food, Regulations, and Consumer Welfare: The US Microwaveable Popcorn Market (with Christoph Bauner, Nadia Streletskaya, and Emily Wang) [Link To Draft] (Submitted)
Abstract: This paper studies welfare implications of policies implemented to regulate consumption of unhealthy food items by focusing on the trans-fat content of a product. Trans-fat is a primary cause of deaths related to heart attack and obesity in the U.S, and partially hydrogenated oil (PHO) is identified as a key ingredient contributing towards the trans-fat content of food items. Use of partially-hydrogenated oil as an ingredient however, may enhance taste, may add texture to food items and also decreases cost of production by providing longer storability and shelf-stability for products. To study the welfare implications of different policy regulations, we estimate a model of demand and supply using Nielsen retail scanner datasets, and recover consumer preferences as well as marginal cost of production. We then evaluate welfare effects of banning the use of PHO leading to a ban on trans-fat in the market for microwaveable popcorn and compare it with an alternative proposal that imposes a tax on products that contain trans-fat. Our results suggest that, a trans-fat ban leads to around 25% drop in consumer welfare compared to the status-quo. We find that a high level (35%) of ad-valorem tax can also achieve close to zero trans-fat in the food chain (as ensured by the ban of PHO) while having similar welfare consequences as a ban. Lower taxes, for example a tax of 10%, however, can still lead to a significant reduction of trans-fat consumption (around 48%) while the associated consumer welfare is reduced by a smaller magnitude.
3. Welfare Consequences of Trade Associations: The Case of Chilean Fish Export Industry (with Tom Eisenberg, Manuel Estay)
[Link To Draft]
Abstract: This paper examines the welfare consequences of the existence of a trade association by considering the Chilean fish exporting industry. Trade associations can improve welfare by enforcing quality standards, sharing information among firms, and facilitating market entry. However, they may encourage collusion and negatively affect non-member firms. We estimate a structural model of the Chilean fish exporting industry and show that the product quality effects are strongly positive. We reject the hypothesis that firms within the association engage in the collusive activity. In counterfactual simulations with Chile and the US, we find the trade association mutually beneficial, increasing consumer and producer surplus.
4. Spillover Effects in Complementary Markets: A Study of the Indian Cellphone and Wireless Service Markets (with Chirantan Chatterjee, and Ying Fan)
[Link To Draft]
Abstract: This paper highlights and quantifies how the presence of technologically superior firms in a market helps the development of a complementary market (a cross-market spillover effect), which, in turn, benefits other firms in the first market (a within-market spillover effect), and more importantly, how consumers benefit from both spillover effects. Our context is the Indian mobile industry during the 4G rollout. The industry consists of the handset market and the complementary wireless service market. Using a detailed dataset on these two markets, we estimate a structural model of consumer demand, carriers’ 4G network expansions, and handset firms’ product choices. Our estimates yield four findings that support the spillover effects. Using counterfactual simulations, we quantify how the presence of international handset firms, which are technologically more advanced than domestic firms, speeds up the 4G network rollout, increases the 4G phone variety, and benefits consumers.