The Price Effect of Drug Price Ceilings: Intended and Unintended Consequences

Policy makers in many developing countries use maximum price or markup policies to control pharmaceutical costs, which represent 20%–60% of their overall healthcare expenditure. We study the price effect of price ceiling policies by exploiting a major policy shift in China: the elimination of longstanding ceilings on retail drug prices. We collect weekly price and characteristics data on more than 4,500 drug stock keeping units (SKUs) from a leading pharmacy chain. By comparing the rate of discontinuous price jumps across drugs with and without price ceilings during the years before and after the policy change, we find that while price ceilings are effective in containing the prices of some drugs, they can lead to higher prices for others, particularly if the ceilings are set at the national level irrespective of local economic conditions. About 5% of nationally controlled drugs (or more than 125 drugs) had inflated prices because of price ceilings, with an average price inflation of 10%. We attribute this perverse price effect to focal point pricing and asymmetric information about production costs. Further supporting this view, we find the perverse price effect most prominent in lower-income regions where the centrally set price ceilings are arbitrarily high considering their poorer economic conditions. Moreover, drugs with highly concentrated production and less elastic demand face heightened risks of inflated prices under price ceilings. Finally, based on a sample of drugs with available price ceiling data, we find that drugs with manufacturer-specific ceilings are 100% more likely to be priced at or near their ceilings and 70% more likely to experience price drops once the ceilings are removed compared with other drugs with regular ceilings. Overall, this paper documents the unintended perverse effect of price ceilings in pharmaceutical markets and sheds lights on the ongoing debate of drug price regulation. This paper was accepted by Stefan Scholtes, healthcare management.

International Production Networks Are Overcoming COVID-19 Shocks: Evidence from Japan's Machinery Trade

This paper investigates the impacts of COVID-19 on international production networks in machinery sectors by shedding light on negative supply shocks, negative demand shocks, and positive demand shocks. Specifically, we examined changes in trade in the trade-fall periods amid COVID-19 in 2020 using Japan's machinery trade at the most disaggregated level and decomposed them into two intensive margins (i.e., the quantity effect and the price effect) and two extensive margins (i.e., the entry effect and the exit effect). Our empirical results show that trade relationships for parts and components were robust even amid COVID-19 and that international production networks in machinery sectors were almost intact. They also demonstrate that COVID-19 brought positive demand shocks for specific products with special demand due to its nature in addition to negative supply shocks and negative demand shocks, which partially explains heterogeneous effects not only among sectors but also among products in the same sector. As of October 2020, Japan's machinery trade seems to have mostly recovered.

The Price Effect of Stock Repurchases: Evidence from Dual Class Firms

We examine a sample of dual-class firms to isolate the magnitude and duration of the demand-driven price effect from stock repurchases. In this novel setting, the non-repurchased class serves as a near-perfect counterfactual to the repurchased class and controls for private information about firm value contained in the repurchases. The average repurchase in our sample, 0.30% of outstanding shares within a month, increases the stock price by 40 to 70 basis points relative to the non-repurchased class of stock. The effect dissipates completely over the subsequent month unless extended by continued repurchases. This small, short-lived price effect leaves little scope for CEOs to benefit from value-destroying repurchases motivated by self-interest. This paper was accepted by Victoria Ivashina, finance.

Pengaruh Harga terhadap Keputusan Pembelian Konsumen:

Supermarket 212 Mart is here as an answer to meet consumer decisions who want to shop in modern markets based on sharia. However, its new presence has not been able to compete and seize the existing market. Even though the 212 Mart supermarket has implemented a marketing strategy to increase consumer purchasing decisions, this still cannot attract the decision of the wider community to shop because there are several elements of the community's retail mix that have not been maximally implemented. There are many factors that can influence consumer purchasing decisions, one of which is price. The purpose of this study is to determine and analyze the effect of price on consumer purchasing decisions 212 Mart Cikaret. The research method used is a survey method with a correlational analysis approach. The number of samples is 100 people. The test was carried out with a simple linear test by first testing the validity, reliability, and data analysis The results of the analysis show that the price variable has a significant effect on buying decisions (t count 16.591 is greater than t table 1.985 with a significant level of 5%). Ho is rejected, Ha is accepted, meaning that there is a significant price effect on consumer decisions to shop at 212 Mart supermarkets. The price variable has a positive correlation with purchasing decisions with a coefficient of determination (R2) of 655.8%. The positive constant value indicates the potential for consumer fanaticism towards 212 Mart Cikaret. Fanaticism gets stronger if there is a lower price than its competitors.