Time: 31st October (Tuesday) 15.00 Moscow time
Speaker: Andrey Tkachenko (Nazarbayev University, Department of Economics)
Title: Competitive Effects of Vertical Integration in Auctions
Field of study
"The research paper is in the broad field of Industrial Organization, focusing on Auctions and Mergers."
What problem is your research intended to solve?
"This paper studies the price effect of vertical mergers between pharmaceutical drug producers and distributors in a public procurement setting."
What did your research find?
"The paper shows that for drugs with few producers, vertical merger increases prices by 12%, while it decreases prices by 1.7% for drugs with many producers. The paper proposes an effective remedy for a vertical merger to mitigate the price increase in the former case. This paper is the first to study vertical mergers in the auction setting empirically."
Abstract: This paper studies the competitive effects of vertical integration between pharmaceutical drug producers and distributors in an auction setting. Utilizing data on 814,000 public procurement auctions in Russia, I identify the causal effect of vertical integration on the procurement prices of drugs. For drugs with few producers, vertical integration increases prices by 12%, while it decreases prices by 1.7% for drugs with many producers. I propose a model where distributors participating in a procurement auction negotiate with upstream producers. In the equilibrium, foreclosure explains the former empirical finding, while the exogenous synergy of the integration drives the latter effect. I use this model for the structural estimation of producer and distributor costs for drugs with two producers. Simulations show that a vertical merger with a synergy effect below 4% of the total cost harms the buyer. For a vertical merger with low synergy, the mandatory sharing of the production technology by the merging producer with a new independent firm is an effective remedy.
More information, a link to the research and the upcoming seminar here.
We are looking forward to seeing you!
Speaker: Andrey Tkachenko (Nazarbayev University, Department of Economics)
Title: Competitive Effects of Vertical Integration in Auctions
Field of study
"The research paper is in the broad field of Industrial Organization, focusing on Auctions and Mergers."
What problem is your research intended to solve?
"This paper studies the price effect of vertical mergers between pharmaceutical drug producers and distributors in a public procurement setting."
What did your research find?
"The paper shows that for drugs with few producers, vertical merger increases prices by 12%, while it decreases prices by 1.7% for drugs with many producers. The paper proposes an effective remedy for a vertical merger to mitigate the price increase in the former case. This paper is the first to study vertical mergers in the auction setting empirically."
Abstract: This paper studies the competitive effects of vertical integration between pharmaceutical drug producers and distributors in an auction setting. Utilizing data on 814,000 public procurement auctions in Russia, I identify the causal effect of vertical integration on the procurement prices of drugs. For drugs with few producers, vertical integration increases prices by 12%, while it decreases prices by 1.7% for drugs with many producers. I propose a model where distributors participating in a procurement auction negotiate with upstream producers. In the equilibrium, foreclosure explains the former empirical finding, while the exogenous synergy of the integration drives the latter effect. I use this model for the structural estimation of producer and distributor costs for drugs with two producers. Simulations show that a vertical merger with a synergy effect below 4% of the total cost harms the buyer. For a vertical merger with low synergy, the mandatory sharing of the production technology by the merging producer with a new independent firm is an effective remedy.
More information, a link to the research and the upcoming seminar here.
We are looking forward to seeing you!