Many drugs sold in poor countries are counterfeit or substandard, endangering patients’ health and fostering drug resistance. Since drug quality is difficult to observe, pharmacies in weakly regulated markets may have little incentive to improve quality. However, larger markets allow firms to reorganise production and invest in technologies that reduce the marginal cost of quality. This column discusses how the entry of a new pharmacy chain in India led incumbents to both cut prices and raise drug quality.
Millions of people die each year from infectious diseases like malaria, TB, HIV, and diarrhoea, many of which have drug therapies. We need effective medicine to confront the alarming burden of infectious disease in the developing world. However, many of the drugs for sale in developing countries are of poor quality. Counterfeiters sell ineffective products that imitate the appearance of established brands, while small manufacturers make and distribute substandard versions of common generics.
Joan Costa-i-Font, Alistair McGuire, Nebibe Varol10 May 2014
Generic medicines are cheaper than their branded counterparts, offering potential savings in healthcare budgets. Medicine-price regulation plays an important role in the expansion of the market for generic medicines. This column presents new evidence that higher levels of price regulation, by lowering the expected price to generic manufacturers, lead (ceteris paribus) to greater delays in generic entry.
With healthcare budgets around the world under pressure, switching to generics seems a natural cost saver. Generic drugs are cheaper alternatives to branded medicines, offering an obvious source of efficiency gains to any health system.
Cartel fines imposed by the European Commission routinely reach hundreds of millions of euro, having increased since the new 2006 fining policy. This column argues that they are still below their optimal level and come too slowly. Fines were often lower than the additional cartel profits and imposed 10 to 20 years after making the law-breaking decision was made – sometimes after the responsible managers had retired. To speed investigations, the Commission should Increase resources dedicated to inquiries; fines should also be raised.
Anti-cartel enforcement is the least controversial of competition-policy themes. Price fixing, market sharing and other agreements to restrict competition have obvious negative effects on welfare. Within the EU, however, industry representatives have increasingly voiced concern that the European Commission imposes excessive fines to enforce anti-cartel law – particularly since the introduction of new guidelines on fines in 2006. Fines are said to be too high, disproportionate, and liable to introduce distortions into the market, ultimately leading to higher prices for consumers.
The authors use highly disaggregated firm-level export data from Costa Rica, Ecuador, and Uruguay over the period 2005-08 to provide a precise characterization of firms' export margins, across products, destination countries, and crucially customers. They show that a firm's number of buyers and the distribution of sales across them systematically vary with the characteristics of its destination markets.
This paper measures the impact of the minimill, a drastic new technology for producing steel. The authors find that the sharp increase in the industry's productivity is linked to this new technology, and operates through two distinct mechanisms. First, minimills displaced the older technology, called vertically integrated production, and this reallocation of output was responsible for a third of the increase in the industry's productivity. Second, increased competition, due to the expansion of minimills, drove a substantial reallocation process within the group of vertically integrated producers, driving a resurgence in their productivity, and consequently of the industry's productivity as a whole.
Financial foul play? An analysis of UEFA’s attempts to restore financial discipline in European football
Rob Simmons03 September 2012
As the new football season kicks off, Europe’s top clubs are preparing to abide by UEFA’s Financial Fair Play initiative, designed to ensure financial discipline and make European football more competitive. But this column argues that the new rules could end up doing just the opposite.
As the 2012/13 football season kicks off, many fans, journalists, and social commentators will be heard saying that: a) the gap in financial resources between large and small clubs is greater than ever, b) star players at big clubs such as Barcelona, Chelsea, Real Madrid, Manchester City and Manchester United earn exorbitant salaries, and c) the finances of several clubs are out of control, as clubs that are hungry for success generate large financial losses as their spending levels on transfer fees and player salaries are driven up.
Financing start-ups: The impact of credit scoring and bank concentration
Hans Degryse, Martin Brown, Daniel Hoewer, María Fabiana Penas05 June 2012
Might bank consolidation and the increasing reliance on external credit ratings harm access to credit for start-up firms, especially those in high-tech industries? This column examines how the availability of credit for start-ups in Germany is related to their external credit rating as well as the size and expertise of their main bank.
Newly created firms and in particular high-tech start-ups are the engines of growth in many countries. Empirical evidence from the US and Europe shows that banks are the most important source of finance to new firms (Robb and Robinson 2010 for the US; Huyghebaert et al. 2000 and Colombo and Grili 2007 for Europe). However, start-up firms – low-tech and high-tech – often face difficulties in raising the required funds to implement their ideas. Some argue that banks are less willing to provide funds to start-ups, as these firms lack collateral and are more opaque (Hall 2009).
Competition in the services sector and macroeconomic performance in the European countries: The case of Italy
Lorenzo Forni, Andrea Gerali, Massimiliano Pisani03 April 2012
How to jump-start productivity growth in Europe’s economies is a question at the heart of debate over economic policy in the Eurozone. This column explores the effect of a decrease in mark-ups in the Italian services sector. Using simulations, it suggests that the potential macroeconomic gains from pursuing competition-friendly reforms could be substantial.
The ruthlessness with which the global crisis exposed the lack of competitiveness in many of Europe’s economies has renewed interest in ways to encourage greater competition. These reforms are usually targeted at the domestic service sectors in continental Europe, as those sectors are still heavily regulated and, in the last 15 years, have performed badly relative to other economies, such as US.
Complicated relationship between competition and innovation
Noboru Kawahama22 March 2012
Competition may drive down prices but it also drives down profits – and some would argue innovation as well. How should policymakers balance the short-term need for competition with the the long-term need for innovation? This column explores the idea of ‘innovation and competition policy’ rather than just ‘competition poliicy’.
More than 20 years have passed since the collapse of the Soviet Union. Although various views exist about the cause of the failure of the socialist economy, stagnation in innovation is arguably one of the fundamental reasons. It is true that the Soviet Union once achieved a level of basic technology high enough to lead to the Sputnik crisis. But under a regime that did not allow for opportunities to cultivate consumer demand or use profit opportunities as leverage to utilise technology, innovation in general did not develop.
Alison Booth, Patrick Nolen, Lina Cardona Sosa20 February 2012
Some blame women’s under-representation in high-level jobs on differences between the sexes in risk aversion and competition. But are these differences in behaviour hardwired or learned? This column describes a study that tackles this thorny question with a controlled experiment in single-sex and mixed classrooms in a British university. Women are found to become far less nervous about uncertainty over time with the men out of the room.
The majority of experimental studies investigating gender differences in risky choices find that women are less willing to take risks than men. This research is summarised in Eckel and Grossman (2008) and Croson and Gneezy (2009). However, these experimental studies investigating gender differences in risky choices typically do so only at a single point in time.