Viswanath Pingali

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.

Risk diversification through multiple group membership in microfinance

We consider group formation in the joint liability setting in microfinance. Joint liability imposes additional liability of having to repay for group partners should they fail to repay. Multiple group membership allows diversification of that risk, and therefore, is welfare enhancing for risk averse agents. Welfare enhancement occurs even when the total loan of an agent is unchanged. Therefore, multiple borrowing is not synonymous with over-borrowing.

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.

Competition and intellectual property policies in the Indian pharmaceutical sector

The Indian pharmaceuticals market is estimated to be the third largest in the world in terms of volume, and one of the largest in terms of value created (Economics Division, 2017). This industry is also a key player not just within India but also across the globe; the Indian pharmaceutical companies produce bulk drugs that are exported to several countries, including the Organisation for Economic Co-operation and Development (OECD) nations. When compared to the other pharmaceutical sectors in the world such as the mature markets in the OECD countries, the Indian pharmaceutical market is unique due to several reasons: a changing patent regime (from product patents to only process patents and then back to product patents), unique nature of competition (for example, branded generics as against pure generics), etc. Given this exceptional nature of the pharmaceutical market, it is important to understand this sector from a public policy angle.

Endowment Effects in Bundles

Abstract Behavioural experiments conducted so far to establish the presence of endowment effects have endowed the subjects typically with a single good. In this paper, we extend this analysis and test for the presence of endowment effects in a multi-good setting. Specifically, we ask ‘how does endowment effect of a good change when the endowment of other goods in the bundle changes?’ Following the literature, we measure endowment effects as the difference between willingness to pay (WTP) and willingness to accept (WTA). To do this we adopt a novel experiment design that allows us to directly pit prospect theory against neoclassical theory. We find evidence of endowment effects even in the multi-good setting. However, we do not find any statistically significant evidence of endowment effect of the good in question being sensitive/responsive to changes in the endowment of other goods.

Does multiple borrowing necessarily mean over-borrowing?

Using a survey dataset collected from Andhra Pradesh, India, we test if multiple borrowing is equivalent to over-borrowing. Results suggest that over-borrowing and multiple loans are not necessarily synonymous. As the number of credit agencies in a village increases, the average loan burden of villagers does not increase. We also find evidence of substitution of formal sources of credit for informal ones with increased presence of formal credit institutions. Such substitution is greater with addition of microcredit institutions than with other formal lending agencies. Our results indicate that joint liability setup seems to ensure that individuals at a greater risk of non-repayment are discouraged from obtaining microcredit.