nep-com New Economics Papers
on Industrial Competition
Issue of 2021‒03‒15
twenty-one papers chosen by
Russell Pittman
United States Department of Justice

  1. Collusion in Quality-Segmented Markets By Bos, Iwan; Marini, Marco A.
  2. Product Selection in Online Marketplaces By Federico Etro
  3. Competitive Personalized Pricing By Zhijun Chen; Chongwoo Choe Author-X-Name- Chongwoo; Noriaki Matsushima
  4. Imperfect Tacit Collusion and Asymmetric Price Transmission By Bulutay, Muhammed; Hales, David; Julius, Patrick; Tasch, Weiwei
  5. Obfuscation and rational inattention in digitalized markets By Janssen, Aljoscha; Kasinger, Johannes
  6. Biosimilar Competition: Early Learning By Richard G. Frank; Mahnum Shahzad; William B. Feldman; Aaron S. Kesselheim
  7. How Antitrust Really Works: A Theory of Input Control and Discriminatory Supply By Woodcock, Ramsi
  8. Organizational Structure and Technological Investment By Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
  9. Competition with List Prices By Marco Haan; Pim Heijnen; Martin Obradovits
  10. Size-based input price discrimination under endogenous inside options By Evensen, Charlotte B.; Foros, Øystein; Haugen, Atle; Kind, Hans Jarle
  11. The EU Digital Markets Act By CABRAL Luis; HAUCAP Justus; PARKER Geoffrey; PETROPOULOS Georgios; VALLETTI Tommaso; VAN ALSTYNE Marshall
  12. Device-funded vs Ad-funded Platforms By Federico Etro
  13. Paying for pharmaceuticals: uniform pricing versus two-part tariffs By Kurt R. Brekke; Dag Morten Dalen; Odd Rune Straume
  14. Market-Share Contracts, Exclusive Dealing, and the Integer Problem By Zhijun Chen; Greg Shaffer
  15. Differential Pricing: The Economics and International Evidence By Byrne, Shane; McCarthy, Yvonne
  16. How should a startup respond to acquirers? A real options analysis By Michi NISHIHARA
  17. Market polarization and the phillips curve By Javier Andrés; Óscar Arce; Pablo Burriel
  18. Artificial Intelligence and Pricing: The Impact of Algorithm Design By John Asker; Chaim Fershtman; Ariel Pakes
  19. The Value of Privacy in Cartels: An Analysis of the Inner Workings of a Bidding Ring By Kei Kawai; Jun Nakabayashi; Juan M. Ortner
  20. An economic perspective on data and platform market power By MARTENS Bertin
  21. Could Contracts between Pharmaceutical Firms and French Veterinarians Bias Prescription Behaviour: A Principal-Agency Theory Approach in the Context of Oligopolies By Didier Raboisson; Ahmed Ferchiou; Tifenn Corre; Sylvain Perez; Pierre Sans; Guillaume Lhermie; Marie Dervillé

  1. By: Bos, Iwan; Marini, Marco A.
    Abstract: This paper analyzes price collusion in a repeated game with two submarkets; a standard and a premium quality segment. Within this setting, we study four types of price-fixing agreement: (i) a segment-wide cartel in the premium submarket only, (ii) a segment-wide cartel in the standard submarket only, (iii) two segment-wide cartels, and (iv) an industry-wide cartel. We present a complete characterization of the collusive pricing equilibrium and examine the corresponding effeect on market shares and welfare. Partial cartels operating in a sufficiently large segment lose market share and the industry-wide cartel prefers to maintain market shares at pre-collusive levels. The impact on consumer and social welfare critically depends on the cost of producing quality. Moreover, given that there is a cartel, more collusion can be beneficial for society as a whole.
    Keywords: Partial Cartels, Price Collusion, Market Segmentation, Vertical Differentiation.
    JEL: D21 D23 D24 D4 D43 D6
    Date: 2020–10–01
  2. By: Federico Etro
    Abstract: A marketplace such as Amazon hosts many products by third party sellers and acts as a first party or private label retailer. Assuming an advantage of Amazon in logistics and of sellers in marketing, we investigate whether entry by Amazon is excessive from the point of view of consumers. With competitive sellers, entry may be either overprovided or underprovided, but the incentives of Amazon and consumers are correctly aligned for a family of power surplus functions (generating for instance linear, isoelastic and loglinear demands). Competition for customers with other retailers reduces commissions and prices preserving the efficiency result. Market power by sellers increases (reduces) the incentives to retail private label (first party) products, and generates a bias toward underprovision of entry. Similar results apply after extending the analysis to delivery fulfilment by the marketplace, product differentiation with direct price competition on the platform, and dynamic incentives to invest and launch copycat products.
    Keywords: Entry, product selection, platform competition, business models, intermediaries.
    JEL: L1 L4
    Date: 2020
  3. By: Zhijun Chen; Chongwoo Choe Author-X-Name- Chongwoo; Noriaki Matsushima
    Abstract: We study a duopoly model where each firm chooses personalized prices for its targeted consumers, who can be active or passive in identity management. Active consumers can bypass price discrimination and have access to the price offered to non-targeted consumers, which passive consumers cannot. When all consumers are passive, personalized pricing leads to intense competition and total industry profit lower than that under the Hotelling equilibrium. But market is always fully covered. Active consumers raise the firm’s cost of serving non-targeted consumers, which softens competition. When firms have sufficiently large and non-overlapping target segments, active consumers enable firms to extract full surplus from their targeted consumers through perfect price discrimination. With active consumers, firms also choose not to serve the entire market when the commonly non-targeted market segment is small. Thus active identity management can lead to lower consumer surplus and lower social welfare. We also discuss the regulatory implications for the use of consumer information by firms as well as the implications for management. Classification-JEL Codes: D43, D8, L13, L5
    Keywords: Personalized pricing, identity management, customer targeting
    Date: 2019–06
  4. By: Bulutay, Muhammed; Hales, David; Julius, Patrick; Tasch, Weiwei
    Abstract: We investigate the role tacit collusion plays in Asymmetric Price Transmission (APT), the tendency of prices to respond more rapidly to positive than to negative cost shocks. Using a laboratory experiment that isolates the effects of tacit collusion, we observe APT pricing behavior in markets with 3, 4, 6, and 10 sellers, but not in duopolies. Furthermore, we find that sellers accurately forecast others’ prices, but nevertheless consistently set their own prices above the profit-maximizing response, particularly in the periods immediately following negative shocks. Overall, our findings support theories in which tacit collusion plays a central role in APT.
    Keywords: Asymmetric Price Transmission,Tacit Collusion,Oligopolistic Competition,Market Power,Rockets and Feathers
    JEL: D43 L13 C92 C72 C73
    Date: 2021
  5. By: Janssen, Aljoscha; Kasinger, Johannes
    Abstract: This paper studies the behavior of competing firms in a duopoly with rational inattentive consumers. Firms play a sequential game in which they decide to obfuscate their individual prices before competing on price. Probabilistic demand functions are endogenously determined by the consumers' optimal information strategy, which depends on the firms' obfuscation choice and the consumers' unrestricted prior beliefs. We show that the game may result in an obfuscation equilibrium with high prices where both firms obfuscate and a transparency equilibrium with low prices and no obfuscation, providing an argument for market regulation. Lower information costs and asymmetric prior beliefs about prices reduce the probability of an obfuscation equilibrium. Using data on Sweden, we document a decrease in price complexity and corresponding prices in the market for mobile phone subscriptions in the last two decades. Our model rationalizes these changes and explains why complexity and high prices persist in some but not all digitalized markets.
    Keywords: Rational Inattention,Obfuscation,Price Competition,Digitalized Markets
    JEL: D11 D21 D43
    Date: 2021
  6. By: Richard G. Frank; Mahnum Shahzad; William B. Feldman; Aaron S. Kesselheim
    Abstract: Biologics accounted for roughly $145 billion in spending in 2018 (IQVIA, 2019). They are also the fastest growing segment of the pharmaceutical industry. The Biological Price Competition and Innovation Act (BPCIA) of 2010 created an abbreviated pathway for biosimilar products to promote price competition in the market for biological drugs. There was great anticipation that the BPCIA would lead to a moderation in drug prices driven by market competition. The observed levels of competition and the accompanying savings have not reached those expected levels. we investigate the early impacts of entry of potential biosimilar competitors on use of biosimilars and prices for biological products. We focus especially on entry by biosimilars and how altered market structures stemming from the implementation of the BPCIA are affecting the prices for biological products subject to biosimilar competition. We do so by studying 7 products that have recently faced biosimilar competition. We estimate fixed effects and Instrument Variables models to estimate the impact of market competition on prices. Our results indicate that in the range of 1 to 3 entrants each additional marketed product results in a reduction in weighted average market prices of between 5.4 and 7 percentage points.
    JEL: I11 I18 L11
    Date: 2021–03
  7. By: Woodcock, Ramsi
    Abstract: ------->Antitrust law and policy today are a semi-coherent welter of legal and economic doctrines. Immanent in them, however, is a structure of great simplicity and utility. The concept at the heart of the antitrust laws is the linear supply chain, consisting of an essential input, a downstream market in which competition is harmed through the discriminatory supply of the input to downstream firms, and consumers who pay higher prices for finished products as a result of the discriminatory behavior. Antitrust attacks this problem of the discriminatory supply of inputs in two ways. First, it seeks to prevent any one intelligence from taking control over the input, because absent such centralized control, competition from input suppliers eliminates any attempt at discrimination. Stopping the centralization of control over inputs is not always possible, however, because sometimes centralized control improves the quality of the input, and antitrust follows an implicit rule of “innovation primacy,” which holds that any act that plausibly improves the product likely does more good for consumers than any resulting increase in prices harms them, and so the act must be immune from antitrust scrutiny. ------->Second, antitrust regulates attempts by input controllers to use their power to increase their profits other than by charging what they know to be the highest possible prices for their products given their level of knowledge of consumer willingness to pay. Profits can be increased in this way by only three routes, each of which involves discrimination by the input controller in the supply of inputs to downstream firms. The input controller can discriminate in favor of firms that improve the final product ultimately sold to consumers and so increase consumers’ willingness to pay. The input controller can discriminate in favor of downstream firms that supply the input controller with information about consumer willingness to pay, enabling the input controller better to choose its prices to maximize its profits. And the input controller can discriminate against downstream firms that refuse to give the input controller access to profits that the firms have in turn extracted from consumers. The doctrine of innovation primacy protects discrimination that improves the final product sold to consumers, but not discrimination that facilitates information acquisition or the disciplining of refractory downstream firms. ------->This analysis resolves numerous longstanding conundrums in antitrust, including (1) whether antitrust picks winners (it must), (2) whether picking winners limits consumer sovereignty (impossible, because whenever a firm discriminates in the supply of inputs, the firm picks winners, and antitrust, which does no more than challenge such discrimination, therefore only ever substitutes its judgment for that of firms, never for that of end consumers), (3) whether antitrust should have a monopoly power requirement (it should, but the requirement should apply to the input market and not, as at present, to the downstream market in which competition is harmed), (4) whether firms should be allowed to compete on their own platforms as a general matter (of course they should, unless it is thought that consumers always know better than firms how everything they buy should be made, from start to finish), and (5) how to define the limits of the firm (the boundary of the firm does not end where formal ownership ends, but rather where discrimination in the supply of inputs ends). The analysis also shows why Lorain Journal, Aspen Skiing, Linkline, Trinko, Microsoft, Qualcomm, exclusive dealing, and tying are all the same basic case.
    Date: 2021–02–28
  8. By: Inés Macho-Stadler; Noriaki Matsushima; Ryusuke Shinohara
    Abstract: We analyze firms’ decisions on their vertical organization, taking into account the characteristics of both the final good competition and the R&D process. We consider two vertical chains, where upstream sectors invest in R&D. Such investment determines the production costs of the downstream sector and has spillovers on the production and the investment costs of the rival. In a general setting, we show that the equilibrium organizational structure depends on whether the situation considered belongs to one of four possible cases. We study how final good market competition, R&D spillover, and R&D incentives interact to determine the equilibrium vertical structure.
    Keywords: R&D, vertical separation, market structure, spillover
    JEL: L22 L13 O32 C72
    Date: 2021–03
  9. By: Marco Haan; Pim Heijnen; Martin Obradovits
    Abstract: This paper studies the competitive role of list prices. We argue that such prices are often more salient than actual retail prices, so consumers' purchase decisions may be influenced by them. Two firms compete by setting prices in a homogeneous product market. They first set a list price that serves as an upper bound on their retail price. Then, after having observed each other's list price, they set retail prices. Building on the canonical Varian (1980) model, we assume that some consumers observe no prices, some observe all prices, and some only observe list prices. We show that if the latter partially informed consumers use a simple rule of thumb, the use of list prices leads to lower retail prices on average. This effect is weakened if partially informed consumers are rational.
    Keywords: list prices, recommended retail prices, price competition, price dispersion, advertising
    JEL: C72 L13
    Date: 2021–08
  10. By: Evensen, Charlotte B. (Dept. of Economics, Norwegian School of Economics); Foros, Øystein (Dept. of Business and Management Science, Norwegian School of Economics); Haugen, Atle (Dept. of Business and Management Science, Norwegian School of Economics); Kind, Hans Jarle (Dept. of Economics, Norwegian School of Economics)
    Abstract: Individual retailers may choose to invest in a substitute to a dominant supplier’s products (inside option) as a way of improving its position towards the supplier. Given that a large retailer has stronger investment incentives than a smaller rival, the large retailer may obtain a selective rebate (size-based price discrimination). Yet, we often observe that suppliers do not price discriminate between retailers that differ in size. Why is this so? We argue that the explanation may be related to the competitive pressure among the retailers. The more fiercely the retailers compete, the more each retailer cares about its relative input prices. Other things equal, this implies that the retailers will invest more in the substitute the greater the competitive pressure. We show that if the competitive pressure is sufficiently strong, the supplier can profitably incentivize the retailer to reduce its investments in substitutes by committing to charge a uniform input price. Furthermore, we show that under uniform input pricing, the large retailer may induce smaller rivals to exit the market by strategically underinvesting in inside options.
    Keywords: Input price discrimination; size asymmetries; retail competition; inside options; entry; exit
    JEL: D21 L11 L13
    Date: 2021–03–04
  11. By: CABRAL Luis; HAUCAP Justus; PARKER Geoffrey; PETROPOULOS Georgios; VALLETTI Tommaso; VAN ALSTYNE Marshall
    Abstract: Over the last years, several reports highlighted the market power of very large online platforms that are gatekeeping intermediaries between businesses and consumers, and the difficulty for classic competition policy tools to deal effectively with anti-competitive practices in these platforms. In response to this, the European Commission recently published a proposal for a Digital Markets Act (DMA) to complement existing competition policy tools by means of ex-ante obligations for platforms. This report presents an independent economic opinion on the DMA, from a high-level Panel of Economic Experts, established by the JRC and based on existing economic research and evidence. The Panel endorses the vision encapsulated in the DMA, including the designation of large gatekeeper platforms and a series of ex-ante obligations they should comply with. The Panel points out the challenge of striking a balance between the benefits from network effects of large platforms and the potential negative effects from anti-competitive behaviour and winner-takes-all market forces in online services. While some types of anti-competitive behaviour are well-known from classic competition cases, data-driven multi-sided platforms have found new ways of tying, bundling and self-preferencing that present new challenges. The report explores these behaviours in specific settings, including in online advertising and mobile ecosystems. It discusses ways to use valuable data gathered by platforms for pro-competitive purposes and the wider benefit of society in order to achieve a higher standard of fairness in the distribution of the social value generated by large platforms. Information asymmetry between platforms and regulators remains an issue in the effective implementation of the obligations.
    Keywords: Digital Markets Act, Platforms, Regulation, Competition
    Date: 2021–02
  12. By: Federico Etro
    Abstract: We analyze device-funded and ad-funded platforms with differentiated ecosystems supporting apps provided under monopolistic competition. The incentives of a device-funded platform in investing in app curation, introducing and pricing its own apps and setting commissions on in-app purchases of external apps are largely aligned with those of consumers, while this is not necessarily the case for the ad-funded platform. In particular, consumers gain from a positive commission set by the device-funded platform because this implies a comparatively lower price of the device, and platform’s apps are introduced and priced internalizing the impact on consumer welfare, perfectly in models of horizontal differentiation and partially in models of vertical differentiation.
    Keywords: Platforms, business models, monopolistic competition, horizontal differentiation, vertical differentiation.
    JEL: L1 L4
    Date: 2020
  13. By: Kurt R. Brekke (Norwegian School of Economics); Dag Morten Dalen (Norwegian Business School); Odd Rune Straume (NIPE and Department of Economics, University of Minho and Department of Economics, University of Bergen)
    Abstract: Two-part pricing (the Netflix model) has recently been proposed instead of uniform pricing for pharmaceuticals. Under two-part pricing the health plan pays a fixed fee for access to a drug at unit prices equal to marginal costs. Despite two-part pricing being socially efficient, we show that the health plan is worse off when the drug producer is a monopolist, as all surplus is extracted. This result is reversed with competition, as two-part pricing yields higher patient utility and lower drug costs for the health plan. However, if we allow for exclusive contracts, uniform pricing is preferred by the health plan.
    Keywords: Pharmaceuticals; Health Plans; Payment schemes
    JEL: I11 I18 L13 L65
    Date: 2021
  14. By: Zhijun Chen; Greg Shaffer
    Abstract: Exclusionary contracts have long been a focus of antitrust law and the subject of much scholarly debate. This paper compares two types of exclusionary contracts, exclusive-dealing and market-share contracts, in a model of naked exclusion. We discuss the different mechanisms through which each works and identify a fundamental tradeoff that arises: market-share contracts are better at maximizing a seller’s benefit from foreclosure (because they allow the seller to obtain any foreclosure level it desires) whereas exclusive-dealing contracts are better at minimizing a seller’s cost of foreclosure (because, unlike with market-share contracts, the seller does not have to overpay for the units it forecloses). We identify settings in which each can be more profitable and show that welfare can be worse under market-share contracts
    Keywords: Exclusive dealing, Market-share contracts, Dominant Firm, Foreclosure
    JEL: L13 L41 L42 K21 D86
    Date: 2019–06
  15. By: Byrne, Shane (Central Bank of Ireland); McCarthy, Yvonne (Central Bank of Ireland)
    Abstract: In broad terms, differential pricing refers to a situation where individual consumers or groups of consumers are charged different prices for similar goods or services. The practice is widely used across a range of markets, and can bring benefits for consumers. For example, it can encourage competition and innovation and it can facilitate market access for consumers who might be unable or unwilling to pay a uniform price. However, differential pricing can also bring costs for consumers, particularly if it affects vulnerable groups or those with a lower ability or willingness to search for better offers. In this Note, we provide an overview of the economics of differential pricing and review several international cases where public authorities have investigated the practice.
    Date: 2020–11
  16. By: Michi NISHIHARA (Graduate School of Economics, Osaka University)
    Abstract: Many startups have recently opted for sellout to large firms with great market power and profit margins. This paper attempts to understand and guide such startup sellout decisions by developing a model in which the firm reacts to random approaches of high- and low-type acquirers. Optimally, the startup takes either a high-price strategy?accepting only a high-type acquirer in a good economic state? or a flexible strategy?accepting a high-type acquirer in an intermediate economic state and either type in a good economic state? based on a tradeoff between sellout pricing and timing efficiency. With asymmetric information, where the acquirer types are unobservable, the startup accepts a high-price acquisition more eagerly and a low-price acquisition more restrictively to reduce the acquirer fs information rent. Then, asymmetric information increases the probability of a high-price sellout and delays the sellout. A model analysis shows that the market parameters as well as anticipation of acquirers (i.e., the acquirers f arrival rate, valuation, and transparency) greatly affect the sellout price, sellout timing, firm value, and stock price reaction.
    Keywords: M&A; real options; selling process; liquidity; asymmetric information
    JEL: G34 G13 D82
  17. By: Javier Andrés (Universidad de Valencia); Óscar Arce (Banco de España); Pablo Burriel (Banco de España)
    Abstract: The Phillips curve has flattened out over the last decades. We develop a model that rationalizes this phenomenon as a result of the observed increase in polarization in many industries, a process along which a few top firms gain an increasing share of their industry market. In the model, firms compete à la Bertrand and there is exit and endogenous market entry, as well as optimal up and downgrading of technology. Firms with larger market shares find optimal to dampen the response of their price changes, thus cushioning the shocks to their marginal costs through endogenous countercyclical markups. Thus, regardless of its causes (technology, competition, barriers to entry, etc.), the recent increase in polarization in many industries emerges in the model as the key factor in explaining the muted responses of inflation to movements in the output gap witnessed recently.
    Keywords: firm heterogeneity, Bertrand competition, Phillips curve, market share
    JEL: E31 E52 L1
    Date: 2021–02
  18. By: John Asker; Chaim Fershtman; Ariel Pakes
    Abstract: The behavior of artificial intelligences algorithms (AIAs) is shaped by how they learn about their environment. We compare the prices generated by AIAs that use different learning protocols when there is market interaction. Asynchronous learning occurs when the AIA only learns about the return from the action it took. Synchronous learning occurs when the AIA conducts counterfactuals to learn about the returns it would have earned had it taken an alternative action. The two lead to markedly different market prices. When future profits are not given positive weight by the AIA, synchronous updating leads to competitive pricing, while asynchronous can lead to pricing close to monopoly levels. We investigate how this result varies when either counterfactuals can only be calculated imperfectly and/or when the AIA places a weight on future profits.
    JEL: C72 C73 D43 D82 K21 L1 L13 L4 L51 O33
    Date: 2021–03
  19. By: Kei Kawai; Jun Nakabayashi; Juan M. Ortner
    Abstract: We study the inner workings of a bidding cartel focusing on the way in which bidders communicate with one another regarding how each bidder should bid. We show that the designated winner of the cartel can attain higher payoffs by randomizing its bid and keeping it secret from other bidders when defection is a concern. Intuitively, randomization makes defection less attractive as potential defectors face the risk of not winning the auction even if they deviate. We illustrate how our theoretical predictions are borne out in practice by studying a bidding cartel that operated in the town of Kumatori, Japan.
    JEL: L41
    Date: 2021–03
  20. By: MARTENS Bertin (European Commission – JRC)
    Abstract: This paper starts with some basic economic characteristics of data that distinguish them from ordinary goods and services, including non-excludability and non-rivalry, economies of scope in data re-use and aggregation, the social value of data and their role in generating network effects. It explores how these characteristics contribute to the emergence of large digital platforms that generate a combination of positive and negative welfare effects for society, including data-driven network effects. It distinguishes between lexicographic and probabilistic data-driven matching in networks. Both may lead to market "tipping". It emphasizes the social value of data and the positive and negative social externalities that may come with this. Platforms are necessary intermediaries to generate the social welfare or network externalities from data. However, the economic role of data-driven platforms is ambivalent. On the one hand, platforms enable society to benefit from positive externalities in data collection via economies of scale and scope in data aggregation of transactions and interactions across users, both firms and consumers. That gives them a privileged market overview that none of the individual users has. Platforms can use this information asymmetry to facilitate interaction and increase welfare for users. These data externalities attract users to the platform. On the other hand, data-driven network effects may result in monopolistic market power of platforms which they can use for their own benefit, at the expense of users. Any policy intervention that seeks to address the market power of online platforms requires careful balancing between these two poles. Finally, the paper briefly discusses ecosystems that leverage data to coordinate interactions between different platforms.
    Keywords: data, platforms, market power
    Date: 2021–02
  21. By: Didier Raboisson (UMR ASTRE - Animal, Santé, Territoires, Risques et Ecosystèmes - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Ahmed Ferchiou (UMR ASTRE - Animal, Santé, Territoires, Risques et Ecosystèmes - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Tifenn Corre (US ODR - Observatoire des Programmes Communautaires de Développement Rural - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Sylvain Perez (UMR ASTRE - Animal, Santé, Territoires, Risques et Ecosystèmes - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Pierre Sans (ALISS - Alimentation et sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Guillaume Lhermie (UMR ASTRE - Animal, Santé, Territoires, Risques et Ecosystèmes - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Marie Dervillé (LEREPS - Laboratoire d'Etude et de Recherche sur l'Economie, les Politiques et les Systèmes Sociaux - UT1 - Université Toulouse 1 Capitole - UT2J - Université Toulouse - Jean Jaurès - Institut d'Études Politiques [IEP] - Toulouse - ENSFEA - École Nationale Supérieure de Formation de l'Enseignement Agricole de Toulouse-Auzeville)
    Abstract: In France, veterinarians can both prescribe and deliver veterinary medicines, which is a questionable situation from the perspective of antimicrobial use (AMU) reduction to avoid antimicrobial resistance (AMR). This situation places veterinarians in direct commercial relationships with the pharmaceutical industry as purchase contracts are signed between veterinarians and pharmaceutical companies. The aim of the present work is to analyse the relationships between veterinarians and pharmaceutical firms in the oligopoly market context of French veterinary medicine to determine whether the prescription behaviour of practitioners can be biased by joint prescription and delivery. Therefore, we develop an analysis based on principal-agent theory. Contracts between pharmaceutical companies and veterinarians during the 2008–2014 period were analysed based on 382 contracts related to 47 drugs belonging to eight main pharmaceutical firms (2320 observations). The price per unit after rebate of each drug and contract was calculated. The descriptive analysis demonstrated high disparity among the contracts across pharmaceutical firms with regard to the provisions of the contracts and how they are presented. Then, linear regression was used to explain the price per unit after rebate based on the explanatory variables, which included the yearly purchase objective, year, type of drug and type of rebate. The decrease in price per unit after rebate for each extra €1000 purchase objective per drug category was established to be €0.061 per 100 kg body weight for anticoccidiosis treatments, €0.029 per 100 kg body weight for anti-inflammatories, €0.0125 per 100 kg body weight and €0.0845 per animal for antiparasitics, and €0.031 per animal for intramammary antimicrobials. Applying agency theory reveals that veterinarians can be considered agents in the case of monopolistic situations involving pharmaceutical firms; otherwise, veterinarians are considered principals (oligopolistic situations in which at least several medicines have similar indications). The present study does not provide evidence suggesting that joint prescription and delivery may introduce any potential prescription bias linked to conflicts of interest under the market conditions during the 2008–2014 period.
    Keywords: contract,pharmaceutical firm,drugs,veterinarian
    Date: 2021–02

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