Chirantan Chatterjee

Does environmental regulation indirectly induce upstream innovation? New evidence from India

Exploiting a quasi-natural experiment, which primarily involves the imposition of an international ban on a particular input, used by the Indian leather and textile industries, we estimate the indirect impact of the environmental regulation on innovation expenditure and survival probabilities of upstream (chemical) firms in India and how does it vary by size. We find evidence of a significant increase in the innovation expenditure, particularly investments in R&D. This varies by the size distribution of firms, with the effect being highest for small and medium-sized firms. We also find that higher investments in R&D entail lower exit probabilities. Finally, we find some suggestive evidence in support of higher innovation productivity -- the regulation is associated with an increase in number of product claims of patent filings at the Indian patent office by the upstream chemical firms.

The consumer welfare implications of governmental policies and firm strategy in markets for medicines.

This paper empirically examines the consumer welfare implications of changes in government policies related to patent protection and compulsory licensing in the Indian market for oral anti-diabetic (OAD) medicines. In contrast to previous studies on the impact of pharmaceutical patents in India, we observe, and estimate the welfare effects accruing from differential pricing and voluntary licensing strategies of patent-holding innovator firms. Three novel molecules belonging to the dipeptidyl peptidase-4 (DPP-4) inhibitor class of OADs have been launched in India by the patent holders, at lower prices than those prevailing in the developed countries. Using aggregate market transaction data, we structurally estimate demand and supply and use the parameter estimates in our model to simulate consumer welfare under various counterfactual scenarios. Our results suggest that the introduction of DPP-4 inhibitors generated a consumer surplus gain of around 7.6 cents per day for a typical DPP-4 inhibitor user under the existing differential pricing and voluntary licensing strategies. If the innovators decide to price at developed-country levels, this surplus is eliminated almost entirely. The issuance of compulsory licensing does not always improve consumer welfare because if innovators defer or delay the introduction of new drugs in response, the loss in consumer welfare could be substantial.

Mitigating regulatory impact: the case of partial price controls on metformin in India

The use of drug price controls is a contentious issue globally. Low- and middle-income countries use direct price controls to improve access to essential drugs. But such price controls have little meaning if they are not designed and implemented well, and the extent to which firms coordinate in these countries to weaken price controls has been largely overlooked. In mid-2013, India adopted partial price-cap regulation for some, but not all, formulations of several essential medicines. Using data on sales and prices of the out-of-patent oral antidiabetic drug Metformin—considered essential by WHO since 1998—and employing the differences-in-differences methodology, we examine the impact of the regulation on curbing prices. We find that firms coordinated to increase the price of the regulated formulation in the period before regulation, which led to a higher ceiling price. We also find, using triple-differences analyses, that the coordination is stronger among larger firms and for time-release formulations. We present anecdotal evidence to suggest that pharmaceutical trade associations facilitated coordination among firms, and we conclude that partial price control of Metformin in India is, at best, a modest improvement over no regulation.

Hit Where It Hurts: Cartel Policing Using Targeted Sales and Supply Embargoes

In this paper, we examine an asymmetric-punishment strategy that a large and newly identified cartel of retailers uses to police its upstream suppliers and members. The cartel punishes suppliers who violate vertical restraints and members who defect in the key regional or product market where it hurts them the most. The cartel organizes sales embargoes to punish its suppliers and supply embargoes to punish its members. Cartels can leverage the targeted punishment strategy to induce good behavior across multiple product, regional, and vertical markets. We examine several episodes in which the association of retail pharmaceutical traders in India, acting as a cartel, imposes sales embargoes on select pharmaceutical firms and supply embargoes on its members, and we find evidence consistent with targeted punishment. Our results support the theoretical view that growing buyer power in conjunction with vertical restraints facilitates collusion.

The role of physicians in prescribing irrational fixed-dose combination medicines in India

Many irrational fixed-dose combination (FDC) medicines have been approved by the state and central regulatory authorities in India and their use is promoted extensively by pharmaceutical firms. In this study, we examine the previously-neglected role of physicians in India, as their prescriptions are essential for the continued proliferation of FDCs. Primarily using longitudinal data on prescriptions by 4600 physicians spanning 19 disciplinary categories for 48 months between 2008 and 2011 provided by IMS Medical Audit, we study 201 medicines in the cardiovascular and oral-antidiabetic markets. We find that 129.6 million (8.1%) prescriptions for irrational FDCs were written by the sample of physicians in India during the study period, half of which were written by cardiologists and consulting physicians. A further analysis of the regional markets reveals that cardiologists prescribe more irrational FDCs in the richer, metropolitan cities of western India. We also document the role of medical practitioners without an undergraduate degree in medicine in generating prescriptions for irrational FDCs. Our results suggest that an effective government strategy to curb irrational FDCs must recognize that spreading greater awareness about the perils of irrational FDCs is at best an incomplete solution to the problem in India as many who prescribe them are specialists. Organizations such as the Indian Medical Association must develop clear guidelines to stop prescribing such FDCs.

Competition Law in India: Perspectives

In 2002, the Parliament of India enacted the Competition Act, replacing the archaic Monopoly and Restrictive Trade Practices Act (popularly referred to as the MRTP Act) of 1969. The primary goal of the Act, as stated in the preamble, is ‘...keeping in view of the economic development of the country ... to prevent practices having adverse effect on competition, to promote and sustain competition in markets, to protect interests of consumers and to ensure freedom of trade ...’.1 Economic theory clearly shows that the total profit in an industry characterized by monopoly is greater than the combined profit of all firms in the industry in case the industry is competitive in nature. At the same time, due to higher prices, consumer welfare suffers under monopoly when compared to a more competitive setup. To me, this is the fundamental theoretical premise behind the competition law. The Act intends to curb any activity that could harm consumer welfare or freedom of any individual (or individuals) to freely and fairly compete in the market. Therefore, the three broad areas for the Competition Act to look at are: (a) cartelizing behaviour of the firms, (b) abuse of dominant position, and (c) mergers and acquisition. Cartels can be interpreted as the joint effort on the part of firms in an industry to drive prices higher than warranted under competitive conditions. In a seminal study, Stigler points out that, despite this advantage, firms may not collude (and form a cartel) because short-term deviations from collusion agreements yield significant shortterm payoffs. One interpretation of this argument is that the free markets would dissuade any cartel agreements.2

The Welfare Implications of Patent Protection, Pricing, and Licensing in the Indian Oral Anti-Diabetic Drug Market

We evaluate the welfare effects of differential pricing, voluntary licensing, and compulsory licensing in the Indian market for oral anti-diabetic (OAD) drugs. This market includes a new class of molecules called DPP-4 inhibitors, all of which are under patent protection in India. The Indian prices of DPP-4 inhibitors are higher than those of other drugs in the same segment, but only a fraction of the price in the U.S. and other developed countries (i.e., the patent holders practice international differential pricing). The patent holders also license the products out voluntarily to local manufacturers who have wider geographical reach in the Indian market. Our methodology involves the application of a discrete choice demand model to market data from IMS India. The model allows us to calculate consumer welfare, under the status quo as well as under counterfactual policy scenarios such as compulsory licensing whereby the government forcibly assigns the right to sell the patented product to local manufacturers. It also allows for the simulation of market outcomes under different pricing and licensing strategies by the patent holders. Our results indicate that differential pricing and voluntary licensing together have a large positive impact on consumer welfare in the OAD market. We find that the assignment of compulsory licenses for DPP-4 inhibitors to local manufacturers generates an increase in consumer welfare, but the magnitude is small. We also simulate the welfare impact of freeing one of the molecules in the OAD segment from price control, and find it to be negative and large. These findings have significant implications for the policy choices faced by the Indian government.

Government health insurance and spatial peer effects: New evidence from India

What is the role of spatial peers in diffusion of information about health care? We use the implementation of a health insurance program in Karnataka, India that provided free tertiary care to poor households to explore this issue. We use administrative data on location of patient, condition for which the patient was hospitalized and date of hospitalization (10,507 observations) from this program starting November 2009 to June 2011 for 19 months to analyze spatial and temporal clustering of tertiary care. We find that the use of healthcare today is associated with an increase in healthcare use in the same local area (group of villages) in future time periods and this association persists even after we control for (1) local area fixed effects to account for time invariant factors related to disease prevalence and (2) local area specific time fixed effects to control for differential trends in health and insurance related outreach activities. In particular, we find that 1 new hospitalization today results in 0.35 additional future hospitalizations for the same condition in the same local area. We also document that these effects are stronger in densely populated areas and become pronounced as the insurance program becomes more mature suggesting that word of mouth diffusion of information might be an explanation for our findings. We conclude by discussing implications of our results for healthcare policy in developing economies.

When the Big One Came: A Natural Experiment on Demand Shocks and Market Structure in India’s Influenza Vaccine Markets

This paper examines the relationship between exogenous demand shocks and market structure in India’s influenza vaccine markets. Using a novel dataset of detailed purchasing information for vaccines in the country, and exploiting the occurrence of the 2009-10 global H1N1 pandemic as an exogenous demand shock, we provide evidence of heterogeneous responses to the shock by domestic and multinational vaccine manufacturers in the influenza vaccine market relative to our control group of all other vaccine markets. We find that such a shock results in reversal of market structure for influenza vaccines in India, with a decline in market share of multinational vaccine manufacturers and significant gains in market share of domestic vaccine manufacturers. This reversal of the market structure is driven by increased innovation efforts by domestic vaccine manufacturers, whose effects persist even after the shock is over. Finally, we examine the role of targeted policy instruments aimed at stimulating innovation in domestic vaccine manufacturers. Our results remain robust to the use of alternative controls, synthetic controls, and various estimation methodologies. They provide new evidence regarding the role of demand shocks in creating differential incentives for domestic and multinational vaccine manufacturers to innovate in an emerging economy context. In addition, our results offer useful insights into the role of policy regarding pandemic preparedness in emerging markets facing adverse welfare effects from pandemics.

Women’s Disempowerment and Preference for Skin Whitening Products: Experimental Evidence

Free market advocates consider consumer choice unambiguously welfare-enhancing. But opponents argue that consumers are often unable to make choices aligned with their well-being, and that being dis...