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on Industrial Organization |
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Issue of 2013‒11‒22
six papers chosen by |
| By: | Hyytinen, Ari; Steen, Frode; Toivanen, Otto |
| Abstract: | We study cartel contracts using data on 18 contract clauses of 109 legal Finnish manufacturing cartels whose legal status is reminiscent of e.g. the U.S Sugar Institute. One third of the clauses relate to raising profits; the others deal with instability through incentive compatibility, cartel organization, or external threats. Cartels use three main approaches to raise profits: Price, market allocation, and specialization. These appear to be substitutes. Choosing one has implications on how cartels deal with instability. Simplifying, we find that cartels economize on contract clauses, cartels in homogenous goods industries allocate markets, and small cartels avoid competition through specialization. |
| Keywords: | cartels; contracts; antitrust; competition policy; industry heterogeneity; |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:ner:leuven:urn:hdl:123456789/425079&r=ind |
| By: | Sergio Currarini (University of Leicester, Universita' di Venezia and Euro-Mediterranean Center on Climate Change); Marco A. Marini (Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza") |
| Abstract: | We study the welfare effects of parallel trade (PT) considering investment in quality. We thus revisit the case for allowing PT in research-intensive industries. We find that quality may be higher with than without PT, depending on how consumersÕ preferences for quality differ across countries. Conditional on quality, consumer surplus may rise in the source country, or fall in the destination country of PT. We find that PT reduces ex post welfare, and improving quality is a necessary (and sometimes sufficient) condition for PT to increase welfare ex ante. |
| Keywords: | Parallel trade; Price discrimination; R&D investment; Intellectual property rights |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:aeg:report:2013-14&r=ind |
| By: | Paul O'Sullivan (Department of Economics Finance and Accounting, National University of Ireland, Maynooth) |
| Abstract: | This paper analyses the incentives of incumbent firms to form a first-mover RJV when faced with possible entry. If entry is accommodated, firms’ relative profits under R&D competition and RJV formation depend on R&D spillovers and firms’ R&D efficiency. RJV formation may make entry unprofitable if spillovers are sufficiently low. If entry is deterred, RJV formation may be more profitable. Similarly, whether accommodation or deterrence is more profitable under RJV formation depends on spillovers and the firms’ efficiency. How welfare is affected by RJV formation depends on whether output is exported or domestically consumed. There may be a role for active government policy to affect market outcomes. |
| JEL: | D2 L2 L4 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n245-13.pdf&r=ind |
| By: | Paul O'Sullivan (Department of Economics Finance and Accounting, National University of Ireland, Maynooth) |
| Abstract: | This paper examines a one-shot game where two symmetric incumbents are faced with possible entry into an industry, where firms may differ in the efficiency of R&D in reducing marginal production costs. The decision facing the incumbents is whether to compete at the R&D stage or to form a RJV. R&D competition may imply that remaining in the market is not viable for the incumbents and the entrant is a monopolist. Conversely, RJV formation may make entry unprofitable and, possibly, increase welfare. The effect on welfare will depend on whether output is exported in its entirety or consumed domestically. |
| JEL: | D2 L2 L4 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:may:mayecw:n246-13.pdf&r=ind |
| By: | Tannista Banerjee; Stephen Martin |
| Abstract: | In this paper we develop a model of the impact of the drug approval process on the terms of a contract between a pharmaceutical company that requires the services of a contract research organization (CRO) to carry out testing of new drug molecules. Results show that if the equilibrium contract includes a variable payment (royalty), the CRO gives more effort to create a more accurate result, the more strict the FDA approval process. We also find that given the royalty shares in the contract if the FDA demands more accuracy in results as a condition of approval, then the CRO will generate more accurate results from late stage tests. However, greater FDA stringency in the approval process benefits pharmaceutical companies because the greater is FDA stringency, the less is the risk of a drug recall. We also find that in order to employ a CRO in the testing process, the pharmaceutical company's prior probability that the drug is of high quality must be very high. |
| Keywords: | Pharmaceutical regulation; Food and Drug Administration; R&D outsourcing; contract research |
| JEL: | L24 L65 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:abn:wpaper:auwp2013-21&r=ind |
| By: | Tannista Banerjee; Ralph Siebert |
| Abstract: | This study shows that R&D cooperation can be used as an instrument to coordinate drug development portfolios among participating firms, which has crucial implications on the number of drugs offered on the market. Our study puts special attention to the fact that R&D cooperation, formed at different stages throughout the drug development process, have different impacts on the technology and product markets. Using a comprehensive dataset on the pharmaceutical industry, our results show that R&D cooperation formed at the early stages increase the number of R&D projects and the number of drugs launched on the product market. Late stage R&D cooperation, however, have a positive impact on the drug development process and drug variety only in the short run. In the long run, late stage cooperation provoke that firms re-optimize their drug development portfolios which reduces the number of drugs offered on the market. |
| Keywords: | Drug development; Dynamics; Co-development; Pharmaceutical industry; Product variety; Product market competition; Research and Development cooperation |
| JEL: | L24 L25 L65 D22 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:abn:wpaper:auwp2013-20&r=ind |