David Reiffen

Generic Drug Industry Dynamics

Because of its unique institutional and regulatory features, the generic drug industry provides a useful laboratory for understanding how competition evolves. We exploit these features to estimate a system of structural relationships in this industry, including the relationship between price and the number of competitors, and between drug characteristics and the entry process. Our methodology yields a number of findings regarding industry dynamics. We find that generic drug prices fall with increasing number of competitors, but remain above long-run marginal cost until there are eight or more competitors. We also find the size and time paths of generic revenues, rents, and the number of firms are greatly affected by expected market size. Finally, we show how estimates derived from a system of structural equations can be used to simulate the effect of changes in an exogenous variable.

Patterns of Retail Price Variation

We examine retail price variation across a range of goods and regions of the United States. We find that the typical grocery product has a regular price and stays at that price at least 50% of the time, and that most deviations from that regular price are downward. Temporary discounts or sales, while infrequent, account for 20% to 50% of the annual variation in retail prices for most product categories. Although existing models of retail sales yield predictions consistent with some aspects of the retail pricing distributions, all of these models fail to explain other important aspects of retail pricing identified here.

A Regulated Firm's Incentive to Discriminate: A Reevaluation and Extension of Weisman's Result

This note reexamines the incentive of a regulated monopolist with an unregulated, vertically-related affiliate to discriminate against rivals of the affiliate. Taking Weismans (1995) model as a framework, I show that his analysis understates the incentive to discriminate. My analysis shows that the incentive to discriminate exists more generally than his analysis suggests, and that the size of the incentive depends in an intuitive way on factors such as the stringency of regulation, the cost of discriminating, and the degree of substitution between the products of the affiliate and its rival.

Discriminatory Dealing with Downstream Competitors: Evidence from the Cellular Industry

One concern about regulated monopolies entering unregulated vertically-related markets is that they will discriminate against competitors of their unregulated affiliates. However, prohibiting regulated monopolies from offering related goods may preclude production by the most efficient provider. We take advantage of variation across geographic cellular phone markets in the US to examine the effect of integration on output, quality and prices. We find some evidence consistent with efficiencies (greater concentration of lines to users is associated with greater output and higher quality) and some consistent with discrimination (greater interconnection facility ownership concentration is associated with lower output and quality).

Swap Trading after Dodd-Frank: Evidence from Index CDS

The Dodd-Frank Act mandates that certain standard OTC derivatives be traded on swap execution facilities (SEF). This paper provides a granular analysis of SEF trading mechanisms, using message-level data for May 2016 from the two largest customer-todealer SEFs in index CDS markets. Both SEFs offer various execution mechanisms that differ in how widely customers’ trading interests are exposed to dealers. A theoretical model shows that although exposing the order to more dealers increases competition, it also causes a more severe winner’s curse. Consistent with this trade-off, the data show that customers contact fewer dealers if the trade size is larger or nonstandard. Dealers are more likely to respond to customers’ inquiries if fewer dealers are involved in competition, if the notional size is larger, or if more dealers are making markets. Finally, dealers’ quoted spreads and customers’ transaction costs increase in notional quantity and the number of dealers involved. In addition to results related to the winner’s curse, past trading relationships also affect customers’ requests and dealers’ responses. Our results contribute to the understanding of swaps markets by providing insights into the trade-offs faced by investors and dealers.

Pricing dynamics of multiproduct retailers

This paper attempts to broaden our understanding of retail pricing dynamics by providing some systematic evidence about U.S. grocery prices. Using a large data set containing prices on twenty categories of goods from thirty U.S. metro areas for the period 1988–1997, we find a number of empirical regularities. Sales are common phenomenon in that retailers seem to have a “regular” price, and most deviations from that price are downward. There is also considerable heterogeneity in sale behavior across goods within a category, such as cereal. Within each category of goods, retailers regularly put some items on sale, while other items are rarely, if ever, put on sale. Finally, the probability of a sale on an item appears to be greater when demand for that item is higher. These results suggest that retailers use complicated strategies in pricing the items they sell that differ across items and over time. Studies that use retail prices and do not account for the process determining retail prices are likely to yield misleading results.

On the equivalence of resale price maintenance and quantity restrictions

Abstract When demand is known with certainty, there is a clear mapping between a monopolists pricing and output decisions. This suggests an equivalence between a monopolist manufacturer specifying a minimum (maximum) retail price, and imposing a maximum (minimum) quantity on its retailers. This paper shows that while the effect of maximum RPM can always be replicated by an appropriate quantity floor, the minimum RPM outcome cannot always be replicated by an appropriately-chosen quantity ceiling. As such, the analysis provides one reason that manufacturers will choose a price floor rather than quantity ceiling, even though a quantity ceiling would appear to lead to lower monitoring costs.

Vertical integration in a spatial setting: Inplications of the successive monopoly distortion☆

Abstract We extend earlier analyses of spatial markets to a vertical setting, in which firms at both the upstream and downstream level face transportation costs and sunk cost investments. Depending on the costs of integration and the size of the successive monopoly distortion loss, vertical integration may be partial, total or not at all.