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 the welfare implications of policies implemented to regulate the consumption of unhealthy food items by focusing on the trans-fat content of a product. Trans-fat is a primary cause of death related to heart attack and obesity in the U.S., and partially hydrogenated oil (PHO) is identified as a key ingredient contributing to the trans-fat content of food items. However, using partially-hydrogenated oil as an ingredient may enhance taste, add texture to food items, and decrease production costs by providing longer storability and shelf-stability for products. To study the welfare implications of different policy regulations, we estimate a demand and supply model using Nielsen retail scanner datasets, recover consumer preferences, and the marginal cost of production. We then evaluate the 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 a 26% 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) and leads to a comparable loss of consumer surplus to the ban. Lower taxes, for example, a tax of 10\%, can still lead to a significant reduction of trans-fat consumption (around 51%) while the associated reduction of consumer welfare is substantially smaller.
3. Welfare Effects of Trade Associations: The Case of the Chilean Salmon Export Industry (with Tom Eisenberg, Manuel Estay)
[Link To Draft] (Submitted)
Abstract: This paper examines the welfare consequences of a trade association in an exporting country on consumers in destination countries. We estimate a structural model of the Chilean Salmon exporting industry that endogenizes firms' pricing and export decisions. Our results show that the trade association has a strong positive effect on consumer utility and requires higher marginal costs of production, which is consistent with mechanisms of higher quality products and lower trade frictions. We also document robust evidence of collusive activity among trade association members. Our counterfactual analysis reveals that eliminating the trade association would still significantly decrease consumer welfare in destination countries.
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.
5. Domestic Tariffs and Consumer Welfare in Developing Countries: Evidence from India (with Jerónimo Callejas and Chirantan Chatterjee) [Link To Draft] (Submitted)
Abstract: This paper studies the unintended welfare consequences of industrial policies designed to encourage domestic production in the context of developing countries. We explore the case of the Indian mobile handset industry, where the Indian government proposed new tariffs on imported ready-to-use mobile handsets and handset components in 2017 to encourage domestic mobile phone production, which was later stalled. We develop and estimate a structural model of India’s mobile phone handset industry by allowing firms to endogenously decide supply chain alternatives, product sets, and prices. Our counterfactual simulations suggest that the continuation of the proposed policy would have resulted in firms lowering investments in the supply chain within India, defeating the policy’s goal. Additionally, the exit of products from the market and price increase due to lower competition would lead to a drop in consumer surplus.