Tying in Two‐Sided Markets with Multi‐Homing: Corrigendum and Comment

We identify two issues in Choi's [2010] paper on tying in two‐sided markets published in this Journal, and provide solutions to both of them. First, we point out that the equilibrium in the absence of tying requires more restrictive conditions and does not satisfy a natural equilibrium refinement criterion. We offer an alternative timing structure that validates the equilibrium derived in Choi [2010] under the conditions provided there. Second, we show that his equilibrium analysis with tying ignores a profitable deviation. We rectify this analysis under our alternative timing structure and derive the (mixed‐strategy) equilibrium with tying. We also show by means of simulations that tying is welfare‐enhancing whenever it is profitable, which is consistent with the main finding in Choi [2010].     

Multi-Market Collusion with Demand Linkages and Antitrust Enforcement

This paper analyzes dynamic cartel formation and antitrust enforcement when firms operate in demand-related markets. We show that cartel prosecution can have a knock-on effect: bringing down a cartel in one market reduces profits and cartel stability and leads to the break-up of the cartel in the adjacent market. Cartel prosecution can also have a waterbed effect: disrupting a cartel increases cartel stability in the adjacent market and induces cartel formation in previously competitive markets. We discuss the impact of dynamic cartel formation on consumer surplus, explore antitrust spillovers, the optimal scope of antitrust interventions and cartel formation with local firms.     

Net Neutrality,Network Capacity,and Innovation at the Edges

We study how net neutrality regulations affect a high‐bandwidth content provider (CP)'s investment incentives to enhance its quality of services in content delivery to end users. We find that the effects crucially depend on whether the CP's entry is constrained by the Internet service provider's network capacity. If the capacity is relatively large, the prioritization reduces the investment as CP's investment and prioritization form substitutes. With limited capacity, however, they become complements and the prioritization can facilitate the entry of congestion‐sensitive content. Our analysis suggests that the optimal policy may call for potentially asymmetric regulations across mobile and fixed networks.     

Evidence of bias in NCAA tournament selection and seeding

We investigate bias in the selection and seeding decisions of the NCAA Division I Men's Basketball Committee. Using data on 910 teams associated with the ten tournaments from 1999 to 2008, we test for bias toward teams from seven ‘major’ conferences and six ‘mid‐major’ conferences, as well as for bias toward teams represented on the Committee. We find substantial support for the hypothesis of bias in favor of virtually all major and mid‐major conferences in selection and/or seeding, as well as evidence of bias toward majors over mid‐majors. We also find substantial evidence of bias toward teams with some type of Committee representation. Copyright © 2010 John Wiley & Sons, Ltd.     

Selection Biases in Complementary R&D Projects

This paper analyzes selection biases in the project choice of complementary technologies that are used in combination to produce a final product. In the presence of complementary technologies, patents allow innovating firms to hold up rivals who succeed in developing other system components. This hold‐up makes innovation rewards independent of project difficulties and firms excessively cluster their R&D efforts on a relatively easier technology in order to preemptively claim stakes on component property rights. This selection bias is persistent and robust to several model extensions. Implications for the optimal design of intellectual property rights are discussed.     

State-imposed solutions to negative externalities: employment impact of pollution abatement policy

Musgrave was acutely aware that many private activities, both consumption and production, generate negative externalities. Advocates for an active government rely on this concept to justify public sector regulation of private activities. Regulations and mandates, along with penalties for non-compliance, are the primary instruments used by government to bring about the “correct” level of output whenever private output gives rise to negative externalities such as environmental pollution. This study in effect offers a case study of the Clean Air Act on employment, i.e., it empirically investigates whether pollution abatement costs have had a negative impact on manufacturing employment in the U.S. Conventional microeconomic theory suggests that there is a trade-off between environmental protection outlays and manufacturing activity, i.e., higher pollution abatement compliance costs borne by industries may contribute to plant shutdowns, lower production levels and lay-offs, and/or lack of investment, thereby leading to diminished manufacturing employment. Existing studies fail to offer a clear conclusion as to the impact of existing environmental protection measures on manufacturing activity. Using state-level data for 2001, this study finds that government-imposed pollution abatement costs have had a statistically significant negative impact on manufacturing employment in the U.S. Richard J. Cebula, Shirley and Philip Solomons Eminent Scholar.     

The budget impact of brodalumab for the treatment of moderate-to-severe plaque psoriasis on US commercial health plans

Introduction: Brodalumab is a new biologic approved by the US Food and Drug Administration in 2017 for the treatment of moderate-severe psoriasis. This study evaluated the impact of the introduction of brodalumab on the pharmacy budget on US commercial health plans.

Methods: An Excel-based health economic decision analytic model with a US health plan perspective was developed. The model incorporated published moderate-to-severe psoriasis prevalence data; market shares of common biologic drugs, including adalimumab, ustekinumab, secukinumab, ixekizumab, and etanercept, used for the treatment of moderate–severe psoriasis; 2017-year Wholesale Acquisition Costs for the biologic drugs; drug dispensing fee; patient co-pay; and drug contracting discount. Total annual health plan costs for the biologic drugs were estimated. Scenarios with different proportions of patients treated with brodalumab were compared to a control scenario when no brodalumab was used.

Results: In a hypothetical commercial health plan covering two million members, 7,038 moderate-to-severe psoriasis patients were estimated to be eligible for treatment with brodalumab. Prior to brodalumab approval, the proportions of patients treated by other biologics were estimated at 50.8% for adalimumab, 13.5% for ustekinumab, 14.1% for secukinumab, 4.4% for ixekizumab, and 17.2% for etanercept. With a 20% drug price discount applied to all biologics, the annual health plan costs for brodalumab, adalimumab, ustekinumab, secukinumab, ixekizumab, and etanercept were estimated at $37,224, $49,166, $55,084, $56,061, $64,396, and $57,170, respectively. When no brodalumab is used, the total annual pharmacy budget for the biologics used among these patients was estimated at $414,362,647. Among scenarios where the proportions of brodalumab usage were 3%, 8%, 16%, and 30%, the total annual pharmacy cost was estimated to be reduced by $3,698,129, $9,861,677, $19,723,355, and $36,981,290, respectively.

Conclusion: Based on the economic model, brodalumab has the potential to substantially reduce pharmacy expenditures for the treatment of patients with moderate-to-severe plaque psoriasis in the US.