Recent Advances and Applications in IO
Paper Session
Saturday, Jan. 4, 2025 8:00 AM - 10:00 AM (PST)
- Chair: Gautam Gowrisankaran, University of Columbia
A Field Experiment on Antitrust Compliance
Abstract
We study the effectiveness of firms' compliance programs by conducting a field experiment in which we disclose to a subset of Japanese firms evidence that the firm is potentially engaging in illegal bid-rigging. We find that the information that we disclose affects the behavior of the treated firms: our test of bid-rigging fails to reject the null of competition for the treated firms after the intervention. We find evidence that this change is not the result of firms ceasing to collude, however. We find evidence that this change is instead the result of active concealment of evidence by cartelizing firms.Regulating New Product Testing: the FDA vs the Invisible Hand
Abstract
Product testing plays an important role in the functioning of markets for innovative new products, where uncertainty exists regarding the product’s safety, quality, or other attributes. In spite of this, an incomplete understanding of the economic trade-offs and their quantitative welfare implications has contributed to different products facing a wide range of regulatory regimes and private testing incentives (and even similar or identical products facing disparate regulations across geography and time). In this paper, we develop a dynamic model of innovation, testing, and competition between firms to examine the interplay between private incentives to test and regulatory requirements. We calibrate the model using data from the medical device sector and then consider the welfare implications of different regulatory regimes, unpacking the economic forces that drive them. Our results highlight that even in the absence of regulatory requirements, firms have substantial private incentives to conduct their own product tests, and accounting for these is critical to good policy. Optimal regulation weighs the treatment effect of inducing more testing with the selection effect that more testing requirements deter some products from entering the market. Our model also reveals a new and important dynamic “pruning” effect, whereby selection that excludes lower quality products increases market incentives for higher quality products. We also quantify the substantial inefficiency of ex-post quality regulation. By contrast, simple ex-ante minimum testing regulations perform surprisingly well in our calibrated model.Investment and Usage of the Subsea Internet Cable Network
Abstract
This paper studies the construction and use of undersea internet cables, acritical piece of communication infrastructure. We view traffic on these cables
as international trade in data. We propose a model in which country-to-country
trade in data, similar to a gravity equation model, traverses the cable network
leading to interregional flows observed in our data. On the supply side, firms
decide whether to invest in new cables, recognizing the impact of their investment
in any one market on global internet flows. We estimate this model using
new data on cable construction and usage via moment inequalities. We use the
results to decompose growth in global internet usage into growth in demand
and improvements in the cable network. We find that the latter is an important
contributor on par with the former. Our counterfactuals highlight the role of
business stealing and network externalities in generating inefficient allocation
of cables.
Discussant(s)
Stephen P. Ryan
,
Washington University-St. Louis
Matthew Ryan Backus
,
University of California-Berkeley
Gautam Gowrisankaran
,
University of Columbia
Mo Xiao
,
University of Arizona
JEL Classifications
- L0 - General
- L4 - Antitrust Issues and Policies