Antibiotic drug resistance is modeled by an increase in future drug cost (or equivalently a decrease in drug quality) due to current consumption. Competition in the medicine market leads to maximum consumption, and results in inefficiency. Free riding is the rationale behind the market failure; a single consumer cannot affect future drug cost, so might as well choose to consume. Drug plans with a centralized way to ration medicine can alleviate free riding. A monopoly will dampen the market failure because it internalizes cost increase. However, a monopoly may not benefit consumers because of high prices. If innovation is possible a potential entrant must consider competing with an incumbent upon entry. Under Cournot competition, entry deterence occurs when the incumbent restricts consumption to reduce its own future cost so the entrant cannot earn enough. Entry deterence by the incumbent can result although there is no uncertainty. Policies that are favorable for entry are considered.
Ching-to Albert Ma is Professor of Economics at Boston University. Albert’s research areas are in industrial organization and health economics. His recent papers study asymmetric information in physician agency, quality competition in private and mixed oligopolies, and experts’ incentives in markets and organizations. On-going research includes credence goods, experiments about altruistic preferences, and pharmaceutical pricing. He has lectured on industrial organization and health economics in Finland, Germany, Italy, Norway, Spain, and Switzerland. In 1998, Albert Ma and co-author Thomas McGuire were awarded the Kenneth J. Arrow Award in Health Economics by the International Health Economics Association.
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Meeting ID: 966 3883 2806
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