Generic Competition in the US Pharmaceutical Industry

We develop a simultaneous equations estimation framework to understand the interactions among generic entry, prices, and market shares. We base our estimates on a panel data sample of 40 brand‐name drugs that first experienced generic competition during the period July 1992–January 1998. We find that generic share and price are simultaneously determined, while the number of generic entrants is a key determinant of generic market share and the generic‐to‐brand price ratio. In addition, we find generic competition to be particularly intense for blockbuster drugs, which experience significantly more generic entrants, price erosion, and generic penetration than other drugs.     

On the different styles of large shareholders’ activism

This paper extends Noe’s (Rev Financial Studies 15:289–317, 2002) model of large shareholder activism in two directions. First, it considers a framework in which large shareholders can choose not only when to monitor, but also how intensively they want to monitor the firm. Second, it considers the impact of laws and regulations by introducing a governance quality parameter that makes monitoring more cost effective. The model yields a new and rich characterization of activism. We find that share wealth (ownership concentration) induces monitoring for higher firm value through more frequent monitoring with unchanged intensity. Cash wealth motivates activism for trading gains, not higher firm value, through less frequent monitoring coupled with higher intensity. We also find that better governance leads to higher firm value through more frequent but less intense activism. When asymmetries within the group of large shareholders exist, the model predicts that the larger/wealthier/more efficient shareholders are more active. These results are broadly consistent with the empirical evidence.     

The merger of populations, the incidence of marriages, and aggregate unhappiness

Let a society??s unhappiness be measured by the aggregate of the levels of relative deprivation of its members. When two societies of equal size, F and M, merge, unhappiness in the merged society is shown to be higher than the sum of the levels of unhappiness in the constituent societies when apart; merger alone increases unhappiness. But when societies F and M merge and marriages are formed such that the number of households in the merged society is equal to the number of individuals in one of the constituent societies, unhappiness in the merged society is shown to be lower than the aggregate unhappiness in the two constituent societies when apart. This result obtains regardless of which individuals from one society form households with which individuals from the other, and even when the marriages have not (or not yet) led to income gains to the married couples from increased efficiency, scale economies, and the like. While there are various psychological reasons for people to become happier when they get married as opposed to staying single, the very formation of households reduces social distress even before any other happiness-generating factors kick in.     

Congestable local public goods in an urban setting

In this paper, we recognize two types of unpure local public goods (LPGs): congestable and pollutable. This paper and the forthcoming one (Clubs in an urban setting, mimeo, 1980) are devoted to congestable LPGs (CLPG). In Part I we define, classify, and characterize CLPGs. CLPGs may vary in their degree of congestability between zero, in the case of a pure LPG, and one, in the case of a private good. Spatially, we recognize two types of LPGs: the dispersed LPG (DiLPG) and the concentrated LPG (CoLPG). The first is distributed throughout the residential ring and the second is provided in specific locations to which households must travel. The second part of this paper is devoted to the investigation of the properties of a CDiLPG in an urban setting. The properties of CoLPG are investigated in (Clubs in an urban setting, mimeo, 1980). A version of Samuelson's rule as to the optimal allocation of pure public goods is extended on one hand to local dispersed public goods and on the other hand to CLPGs. Two corrective Pigouvian taxes are identified: congestion tolls levied on households, and a residential land tax. These two taxes cover total government expenditure on the LPG. The fraction of the expenses on the LPG covered by congestion tolls is α, and that covered by land taxes is (1 − α), where α is the degree of congestability. Efficiency can also be achieved by zoning the residential ring and regulating the housing density in it. This procedure may replace taxation and its advantage is that we can control a large number of externalities by a single set of zoning rules and regulations. An a posteriori rule to guide the local government as to the desirability of its actions is provided.     

Demand for investment in productive and financial capital

The paper deals with an entrepreneur who operates in imperfect capital markets, making rational decisions about productive and financial investment. Using the economic rule that the allocation of assets between productive and financial purposes is carried out according to the equality of the marginal productivity and the marginal factor costs of debt, the paper analyses the factors which determine the size of the firm, the size of debt, and the optimal dynamic path.     

Choosing a digital content strategy: How much should be free?

Advertising supported content sampling is ubiquitous in online markets for digital information goods. Yet, little is known about the profit impact of sampling when it serves the dual purpose of disclosing content quality and generating advertising revenue. This paper proposes an analytical framework to study the optimal content strategy for online publishers and shows how it is determined by characteristics of both the content market and the advertising market. The strategy choice is among a paid content strategy, a sampling strategy, and a free content strategy, which follow from the publisher's decisions concerning the size of the sample and the price of the paid content. We show that a key driver of the strategy choice is how sampling affects the prior expectations of consumers, who learn about content quality from the inspection of the free samples. Surprisingly, we find that it can be optimal for the publisher to generate advertising revenue by offering free samples even when sampling reduces both prior quality expectations and content demand. In addition, we show that it can be optimal for the publisher to refrain from revealing quality through free samples when advertising effectiveness is low and content quality is high. To illustrate, we relate our framework to the newspaper industry, where the sampling strategy is known as the “metered model.”     

A policy response to a downside of the integration of economies: An impossibility theorem

Recent research shows that the merger of economies increases aggregate stress. This paper shows that there is no income distribution policy which will ensure that the wellbeing of the individuals belonging to merging economies does not fall below their pre-merger level.