Welfare Effects of Resale Price Maintenance: Evidence from the Chinese Pharmaceutical Industry (JMP)
This paper studies how resale price maintenance (RPM), a vertical practice that allows upstream manufacturers to directly control downstream retail prices, affects firm competition and social welfare. RPM is controversial from an antitrust perspective because it can eliminate double markups but facilitate price coordination across retailers. I offer direct empirical evidence on these effects of RPM by combining an anti-trust case about RPM with a novel retailer-level dataset. Difference-in-differences estimates show that the adoption of RPM causes the products’ average retail prices to drop by 5%, wholesale prices to increase by 4%, quantities to expand by 12%, and suppresses the price dispersion across retailers. Motivated by these findings, I build and estimate a structural model and illustrate how the key model primitives (consumer substitution patterns and manufacturer bargaining power) determine the welfare effects of RPM. Difference-in-differences results validate the model estimates. The model suggests that RPM is welfare-improving in this setting. Counterfactual analyses show that the consumer surplus gain from RPM would have been 77% higher absent of price coordination incentives. In addition, I show that RPM leads to lower welfare outcomes when adopted by a brand with different market primitives.
Efficiency and Equity Impacts of Urban Transportation Policies with Equilibrium Sorting (with Panle Barwick, Shanjun Li, Andrew Waxman, and Jing Wu) Conditionally Accepted at American Economic Review .
We estimate an equilibrium sorting model of housing location and commuting mode choice with endogenous traffic congestion to evaluate the efficiency and equity impacts of a menu of urban transportation policies. Leveraging fine-scale data from household travel diaries and housing transaction data identifying residents’ home and work locations in Beijing, we recover structural estimates with rich preference heterogeneity over both travel mode and residential location decisions. Counterfactual simulations demonstrate that even when different policies reduce congestion to the same degree, their impacts on residential sorting and social welfare differ drastically. First, driving restrictions create large distortions in travel choices and are welfare reducing. Second, distance-based congestion pricing reduces the spatial separation between residences and workplaces and improves welfare for all households when it is accompanied by revenue recycling. Third, sorting undermines the congestion reduction under driving restrictions and subway expansion but strengthens it under congestion pricing. Fourth, the combination of congestion pricing and subway expansion delivers the greatest congestion relief and efficiency gains. It can also be self-financed, with the cost of subway expansion fully covered by congestion pricing revenue. Finally, eliminating preference heterogeneity, household sorting, or endogenous congestion significantly biases the welfare estimates and changes the relative welfare rankings of the policies.
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In the market for medical goods and services, the intense involvement of the public sector creates a possible linkage between public-sector policies and private-sector outcomes. This study investigates the external effects of a centralized procurement auction policy on generic drugs in China, which creates a price shock (50% decrease on average) in the public sector. Leveraging the regional and timing variations, I find that the pharmacies’ retail price response is much smaller (10%), indicating strong market friction. I build a structural model to quantity the welfare and provide evidence of consumer inertia and transportation costs as the main mechanisms that explain market friction. Firstly, patients that got diagnosed recently are more likely to switch, indicating strong inertia. Secondly, the price response is more significant for pharmacies closer to hospitals, consistent with high transportation costs.
A few top content creators usually capture most of the impressions on digital platforms, discouraging grassroots users from creating new content and threatening the platform ecology. This is a prevalent dilemma: whether a platform should capitalize on popular and high-quality content to satisfy viewers or promote a diverse array of content to encourage nascent content creators and achieve better performance in the long run. I analyze an internal experiment in a short-form video platform to quantify the effects of a support program on novice content creators. The program leads to worse viewer experience in the short run, measured by a six percentage-point decrease in the completion rates ($0.05 loss per viewer), but leads to more content posting and higher content quality. Furthermore, the combined results suggest that improving content quality could counterbalance the adverse effects on viewer experience within three months.
In the year 2016-2018, the Ministry of Public Security of China implemented a new policy to replace the electric vehicles’ (EV) plates with green ones, making EVs’ plates distinguishable from gasoline cars. We use the differences-in-differences method, leveraging the staggered implementation of the policy to identify the treatment effect. We find that this ”nudge” policy boosts the local sales of EVs by 24%, saving the government 2.5 billion RMB in cash subsidy. This effect is robust to province boundary design and heterogeneous across different EV brands and city demographics. We provide additional thoughts on the mechanism.
This paper examines the effects of social pressure on an individual’s behavior. I investigate the policy of a library that publicizes names of borrowers who fail to return books on time to see how such “shame tactics” induce the more timely returns. First, I use a difference-in-differences method to identify the impact of social pressure using historical policy changes as a quasi-experiment. Then a randomized controlled trial (RCT) is conducted by sending emails with different contents to students. The results indicate that: (1) social pressure increases the on-time return rate by 5 percentage points, comparable to the effects of reminders, but weaker than a small fine (1 RMB a day); (2) the impact of social pressure is heterogeneous over different groups of individuals, and is especially strong for faculty, students with wider social connections, and individuals who would have very likely returned the books on time. In practice, this paper suggests an alternative policy tool that facilitates task completion.