Essays on market dynamics in China's pharmaceutical and movie theater industries

This thesis tells you all you need to know about recent policy measures undertaken by the Chinese government to enhance drug accessibility. Chapter 1 examines the competitive bidding for small-molecule generic drugs, while Chapter 2 delves into the realm of large-molecule biological drugs. The first chapter, coauthored with Shengmao Cao and Chuan Yu, studies the equilibrium effects of introducing competitive bidding in drug procurement. In 2019, China introduced a competitive bidding program where drug companies bid for a prespecified procurement quantity in nine provinces. Using a difference-in-differences design, we show that the program reduced average drug prices by 47.4\%. Generic drugs won most bids and cut prices by 75.0\%. We develop an equilibrium model to quantify the trade-off between lower prices and potential choice distortions. Competitive bidding increases consumer welfare if policymakers believe consumers should value branded and bioequivalent generic drugs equally. The program also reduced government expenditure on insurance by 19.8\%. The second chapter studies biological drug development decisions and analyzes the impacts of different drug regulations on market structure and consumer welfare. Specifically, we combine Chinese clinical trial and drug registration data to track firms' innovation decisions and measure consumer welfare using downstream drug sales data. We examine the trade-offs and interactions between the entry of follow-on biological drugs and social welfare. The findings suggest that follow-on products improve consumer welfare by targeting different diseases from those targeted by the original innovative drugs and by decreasing prices. We find that increasing the number of follow-on biologics would reduce the price for innovative product by 5.74\% and would increase consumer welfare by 376.47\%. Regulations to expedite new drug approvals by the China Food and Drug Administration (CFDA) and to decrease entry costs would increase the entry likelihood for follow-on biologics. The most welfare-improving policy is for the state to negotiate with a single domestic firm to avoid costs from repetitive entries and simultaneously enhance consumer welfare through decreased prices. Moreover, Chapter 3, coauthored with Luming Chen and Chuan Yu, explores the welfare implications of vertical integration, with a focus on China's movie market as the contextual backdrop. Specifically, the third chapter investigates the welfare effects of vertical integration in China's movie industry. We leverage data covering all theaters and 423 popular movies in China during 2014-2018. We find no evidence of integrated movies being foreclosed to rival theaters. Integrated theaters show their movies for longer, allocate more screenings, and charge lower prices. We estimate a model of consumers' demand and theaters' screening decisions. Integrated theaters internalize a substantial fraction of their upstream companies' profits. Vertical integration both mitigates distortions from revenue-sharing contracts and steers demand favoring integrated movies. Overall, vertical integration increases consumer surplus with considerable heterogeneity across markets.

Keywords: Humanities and Sciences.
Economics.
Advisor: Gentzkow Matthew
Cuesta Jose Ignacio
Einav Liran