Essays on Industrial Organization and Platform Economy

Abstract

My dissertation consists of four chapters which address important questions in empirical industrial organization and platform economy. Chapter 1 presents the joint work with Castiel Chen Zhuang and Zhentong Lu. This chapter studies the “Zero-Markup Drug Policy” (ZMDP) in China’s pharmaceutical industry. The main motivation of the policy is to break the integration between drug prescription and dispensation so that the known agency problem between physicians and patients can be alleviated. This chapter estimates a structural model of China’s prescription drug market and quantifies the general equilibrium effects of the ZMDP on drug prices, patient welfare, firm profitability and market structure. Our results suggest that: physicians’ prescription decisions are more sensitive to patients’ out-of- pocket costs than hospitals’ drug markups, unless the coinsurance rate is above 35 percent; pricing is mostly dominated by provincial governments that are assumed to represent the joint welfare of patients and physicians; the ZMDP makes generic drugs relatively more favorable and thus more profitable; while total sales is negatively affected by the ZMDP, overall patient welfare improves by a sizable amount because of the lowered prices. Chapter 2 is a joint work with Castiel Chen Zhuang, which was originally published in Economics of Transition and Institutional Change [Huang and Zhuang, 2022]. This chapter tests the famous theory by Acemoglu and Pischke [1998]. We estimate a structural model where labor quality can be affected by firm’s optimal training decision. We use the data of China’s manufacturing enterprises in an era of privatization (2004-2007). Training increases both marginal labor product and wages, but the productivity premium is larger due to the labour market rigidity, which explains the voluntary provision of on-the-job training and supports the theory by Acemoglu and Pischke [1998]. Our results also indicate that: state-controlled enterprises’ investment in training could be both privately and socially efficient; unions play a positive role in facilitating training and increasing workers’ bargaining power; female workers and low-educated workers have higher training premium. Chapter 3 is based on the joint work with Castiel Chen Zhuang and Saizi Xiao, which has been accepted by Applied Economics [Huang et al., 2022]. This chapter investigates how demand, pricing and income distribution in digital platforms respond to the two-sided Covid-19 shock. We focus on a live-streaming platform, where fans could send gifts to streamers. We resort to the generalized quantile regression in Powell [2019] to quantify the unconditional quantile treatment effects of Covid-19 on the virtual gifting. Our result suggests that the pandemic severity on the fans side instead of the anchors side increases virtual gifting. Based on this result, our theoretical model predicts that the platform would cross-subside the anchors. This prediction is consistent with the reality, where the platform spent 1 billion RMB in subsiding anchors. Our estimation results also suggest that Covid-19 leads to the de-polarization of the anchors’ gift income distribution, while other researches find Covid-19 exacerbates income polarization. One possible explanation to this puzzle is that the digital platform serves as the sanctuary and provides flexible working opportunities for those relatively unlucky people. Chapter 4 describes a joint work with Ying-Chin Chen and Castiel Chen Zhuang . It provides new evidence to a classical economics question: how would market competition affect product variety? We propose a novel multi-task graph convolutional neural network approach to measure market competition intensity. To get a clean identification of the treatment effect, we leverage a natural experiment in a live-commerce platform: the account of a top live streamer with strong market power was suspended by accident. Our results indicate that market competition increases product variety, while retail prices are sticky and do not adjust to the exogenous competition shock.