The impact of the reference price system on the pharmaceutical market: A theoretical approach

This article analyses the impact of the reference price system on the price-setting strategies of the pharmaceutical firms and on the level of generic usage. This model is the first to take explicitly into account the impact of the reference price mechanism on the level of competition between brand-name and generic drugs and national pharmaceutical spending. We consider a duopolistic model with one firm producing the brand-name drug, whose patent has already expired, and the other producing the corresponding generic version. We work in a partial equilibrium framework where firms set prices sequentially and consumers face heterogeneous switching costs.We show that brand producers compensate the decline of profits by selling greater quantities instead of charging higher prices, thus fostering price competition in the pharmaceutical market. This result is a consequence of both the assumption of a vertically differentiated model and the introduction of the reference price system.Brand-name and generic drugs, pricing mechanismand switching costs

Measuring multivariate redundant information with pointwise common change in surprisal

The problem of how to properly quantify redundant information is an open question that has been the subject of much recent research. Redundant information refers to information about a target variable S that is common to two or more predictor variables Xi . It can be thought of as quantifying overlapping information content or similarities in the representation of S between the Xi . We present a new measure of redundancy which measures the common change in surprisal shared between variables at the local or pointwise level. We provide a game-theoretic operational definition of unique information, and use this to derive constraints which are used to obtain a maximum entropy distribution. Redundancy is then calculated from this maximum entropy distribution by counting only those local co-information terms which admit an unambiguous interpretation as redundant information. We show how this redundancy measure can be used within the framework of the Partial Information Decomposition (PID) to give an intuitive decomposition of the multivariate mutual information into redundant, unique and synergistic contributions. We compare our new measure to existing approaches over a range of example systems, including continuous Gaussian variables. Matlab code for the measure is provided, including all considered examples

The Economics of Competition Policy: Recent Developments and Cautionary Notes in Antitrust and Regulation

Competition policy has become more prominent while the thinking underlying those policies has undergone substantial revision. We survey advances in antitrust economics and the economics of regulation. Increasing reliance on non-cooperative game theory as a foundation for antitrust has led to rethinking conventional approaches. We review some of these contributions in the context of mergers, vertical restraints, and competition in "network industries." Turning to regulation, we review standard rationales and identify some major contemporary refinements, with examples of the motives behind them and their application. After brief thoughts on privatization, we conclude with suggestions on design and implementation, with some observations on whether these developments are as valuable in the corridors of policy as they may be in the halls of academe.

Cooperation through Coordination in Two Stages

This is the author accepted manuscript. The final version is available from Elsevier via the DOI in this recordEfficient cooperation often requires coordination, such that exactly one of two players takes an available action. If the decisions whether to pursue the action are made simultaneously, then neither or both may acquiesce leading to an inefficient outcome. However, inefficiency may be reduced if players move sequentially. We test this experimentally by introducing repeated two-stage versions of such a game where the action is individually profitable. In one version, players may wait in the first stage to see what their partner did and then coordinate in the second stage. In another version, sequential decision-making is imposed by assigning one player to move in stage one and the other in stage two. Although there are fewer cooperative decisions in the two-stage treatments, we show that overall subjects coordinate better on efficient cooperation and on avoiding both acquiescing. Yet, only some pairs actually achieve higher profits, while the least cooperative pairs do worse in the two-stage games than their single-stage counterparts. For these, rather than facilitating coordination, the additional stage invites unsuccessful attempts to disguise uncooperative play, which are met with punishment

Optimal Sharing Strategies in Dynamic Games of Research and Development

This paper analyses the dynamic aspects of knowledge sharing in R&D rivalry. In a model where research projects consist of N sequential stages, our goal is to explore how the innovators' incentives to share intermediate research outcomes change with progress and with their relative positions in an R&D race. We consider an uncertain research process, where progress implies a decrease in the level of uncertainty that a firm faces. We assume that firms are informed about the progress of their rivals and make joint sharing decisions either before or after each success. Changes in the firms' absolute and relative positions affect their incentives to stay in the race and the expected duration of monopoly profits if they finish the race first. We show that firms always prefer to have sharing between their independent research units if they are allowed to collude in the product market. However, competing firms may have either decreasing or increasing incentives to share intermediate research outcomes throughout the race. If the lagging firm never drops out, the incentives to share always decrease over time as the research project nears completion. The incentives to share are higher earlier on because sharing has a smaller impact on each firm's chance of being a monopolist at the end of the race. If the lagging firm is expected to drop out, the incentives to share may increase over time. We also use our framework to analyze the impact of patent policy on the sharing incentives of firms and show that as patent policy gets stronger, sharing incentives may decrease or increase depending on whether or not the lagging firm has increased incentives to drop out.

Optimal Sharing Strategies in Dynamic Games of Research and Development

This paper builds a theoretical foundation for the dynamics of knowledge sharing in private industry. In practice, research and development projects can take years or even decades to complete. We model an uncertain research process, where research projects consist of multiple sequential steps. We ask how the incentives to license intermediate steps to rivals change over time as the research project approaches maturity and the uncertainty that the firms face decreases. Such a dynamic approach allows us to analyze the interaction between how close the firms are to product market competition and how intense that competition is. If product market competition is relatively moderate, the lagging firm is expected never to drop out and the incentives to share intermediate research outcomes decreases monotonically with progress. However, if product market competition is relatively intense, the incentives to share may increase with progress. These results illustrate under what circumstances it is necessary to have policies aimed at encouraging cooperation in R&D and when such policies should be directed towards early vs. later stage research.Multi-stage R&D, Innovation, Knowledge Sharing, Licensing, Dynamic Games