We study the equilibrium effects of quality regulation on market outcomes by exploiting the staggered phase-in of bioequivalence requirements for generic drugs in Chile. While the objective of the regulation was to increase the perceived quality of generics to reduce vertical differentiation and enhance price competition, we find mostly adverse effects. Even if a large number of drugs obtained the quality certification mandated by the regulation, we estimate that the number of drugs in the market decreased by 13% as a result of the policy. Moreover, we find that prices increased on average by 13% as well as no significant effects on the market share of generics. These adverse effects were mostly concentrated in molecules with small market size. Put together, our results suggest that the intended effects of the regulation on competition through increased (perceived) quality of generics were overturned by adverse competitive effects arising from the costs of complying with the regulation. Small sections of text, that are less than two paragraphs, may be quoted without explicit permission as long as this document is stated. Findings, interpretations and conclusions expressed in this publication are the sole responsibility of its author(s), and it cannot be, in any way, attributed to CAF, its Executive Directors or the countries they represent. CAF does not guarantee the accuracy of the data included in this publication and is not, in any way, responsible for any consequences resulting from its use.
We study the equilibrium effects of quality regulation on market outcomes by exploiting the staggered phase-in of bioequivalence requirements for generic drugs in Chile. While the objective of the regulation was to increase the perceived quality of generics to reduce vertical differentiation and enhance price competition, we find mostly adverse effects. Even if a large number of drugs obtained the quality certification mandated by the regulation, we estimate that the number of drugs in the market decreased by 13% as a result of the policy. Moreover, we find that prices increased on average by 13% as well as no significant effects on the market share of generics. These adverse effects were mostly concentrated in molecules with small market size. Put together, our results suggest that the intended effects of the regulation on competition through increased (perceived) quality of generics were overturned by adverse competitive effects arising from the costs of complying with the regulation. Small sections of text, that are less than two paragraphs, may be quoted without explicit permission as long as this document is stated. Findings, interpretations and conclusions expressed in this publication are the sole responsibility of its author(s), and it cannot be, in any way, attributed to CAF, its Executive Directors or the countries they represent. CAF does not guarantee the accuracy of the data included in this publication and is not, in any way, responsible for any consequences resulting from its use.
Information plays a key role in markets with consumer choice. In education, data on school quality is often gathered through standardized testing. However, the use of these tests has been controversial because of behavioral responses that could distort performance measures. We study the Chilean educational market and document that low-performing students are underrepresented in test days, generating distortions in school quality information. These distorted quality signals a↵ect parents' school choice and induce misallocation of public programs. These results indicate that undesirable responses to test-based accountability systems may impose significant costs on educational markets.
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