IDEAS home Printed from https://ideas.repec.org/a/spr/jecrev/v70y2019i3d10.1111_jere.12235.html
   My bibliography  Save this article

Price Effects of Target Ratcheting: A Progress Report on Medical Devices

Author

Listed:
  • Daiya Isogawa

    (Kyoto University)

  • Hiroshi Ohashi

    (University of Tokyo)

Abstract

Regulators, who have asymmetric information concerning the technology of regulated firms, often rely on incentive-based regulation. While such a scheme is well known to be vulnerable to the adverse incentives of regulated firms, empirical research that quantifies the magnitude of distortion caused by incentive regulation is scarce. This paper is a progress report of our recent project on target ratcheting with an application to medical devices in Japan. A casual observation of detailed product-level transaction data and reduced-form analyses indicate the existence of pricing distortion in the wholesale market. The paper also proposes a two-period bilateral bargaining model to match the data. A preliminary analysis finds evidence consistent with the hypothesis that target ratcheting distorts the pricing of regulated firms, but the magnitude of the distortion is estimated to be economically small.

Suggested Citation

  • Daiya Isogawa & Hiroshi Ohashi, 2019. "Price Effects of Target Ratcheting: A Progress Report on Medical Devices," The Japanese Economic Review, Springer, vol. 70(3), pages 331-340, September.
    • Handle: RePEc:spr:jecrev:v:70:y:2019:i:3:d:10.1111_jere.12235
    DOI: 10.1111/jere.12235
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1111/jere.12235
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1111/jere.12235?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Martin L. Weitzman, 1980. "The "Ratchet Principle" and Performance Incentives," Bell Journal of Economics, The RAND Corporation, vol. 11(1), pages 302-308, Spring.
    2. Gautam Gowrisankaran & Aviv Nevo & Robert Town, 2015. "Mergers When Prices Are Negotiated: Evidence from the Hospital Industry," American Economic Review, American Economic Association, vol. 105(1), pages 172-203, January.
    3. Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(2), pages 173-191.
    4. Henrick Horn & Asher Wolinsky, 1988. "Bilateral Monopolies and Incentives for Merger," RAND Journal of Economics, The RAND Corporation, vol. 19(3), pages 408-419, Autumn.
    5. Armstrong, Mark & Porter, Robert, 2007. "Preface to the Handbook of Industrial Organization, Volume 3," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 0, pages 00, Elsevier.
    6. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    7. Mark Armstrong & Robert Porter (ed.), 2007. "Handbook of Industrial Organization," Handbook of Industrial Organization, Elsevier, edition 1, volume 3, number 1.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gary Charness & Peter Kuhn & Marie Claire Villeval, 2011. "Competition and the Ratchet Effect," Journal of Labor Economics, University of Chicago Press, vol. 29(3), pages 513-547.
    2. Bakaouka, Elpiniki & Milliou, Chrysovalantou, 2018. "Vertical licensing, input pricing, and entry," International Journal of Industrial Organization, Elsevier, vol. 59(C), pages 66-96.
    3. Emmanuelle Auriol & Antonio Estache & Liam Wren-Lewis, 2018. "Can Supranational Infrastructure Regulation Compensate for National Institutional Weaknesses?," Revue économique, Presses de Sciences-Po, vol. 69(6), pages 913-936.
    4. Kornai, János & Maskin, Eric & Roland, Gérard, 2022. "A puha költségvetési korlát - II [The soft budget constraint II]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 94-132.
    5. J. Kornai & E. Maskin & G. Roland, 2004. "Understanding the Soft Budget Constraint," Voprosy Ekonomiki, NP Voprosy Ekonomiki, issue 11.
    6. Giacomo Calzolari & Carlo Scarpa, 2009. "Footloose Monopolies: Regulating a “National Champion”," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1179-1214, December.
    7. Leonard J. Mirman & Thomas D. Jeitschko, 2002. "Information and experimentation in short-term contracting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 19(2), pages 311-331.
    8. David Martimort & Jérôme Pouyet & Carine Staropoli, 2020. "Use and abuse of regulated prices in electricity markets: “How to regulate regulated prices?”," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(3), pages 605-634, July.
    9. Gloria Sheu & Charles Taragin, 2021. "Simulating mergers in a vertical supply chain with bargaining," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 596-632, September.
    10. Endre Bjoerndal & Mette Bjoerndal & Astrid Cullmann & Maria Nieswand, 2016. "Finding the Right Yardstick: Regulation under Heterogeneous Environments," Discussion Papers of DIW Berlin 1555, DIW Berlin, German Institute for Economic Research.
    11. Vincent Conitzer & Curtis R. Taylor & Liad Wagman, 2012. "Hide and Seek: Costly Consumer Privacy in a Market with Repeat Purchases," Marketing Science, INFORMS, vol. 31(2), pages 277-292, March.
    12. Antoine Bouet & David Laborde & David Martimort, 2014. "Two-Tier Asymmetric Information as a Motive for Trade, Trade Policies and Inefficient Trade Agreements," Working Papers hal-02149476, HAL.
    13. Saglam, Ismail, 2017. "The Effect of Observability on the Noncontractible Investment of a Regulated Firm," MPRA Paper 75963, University Library of Munich, Germany.
    14. Aguirre Pérez, Iñaki & Beitia Ruiz de Mendarozqueta, María Aranzazu, 2014. "Countervailing incentives in adverse selection models. A synthesis," IKERLANAK info:eu-repo/grantAgreeme, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
    15. Ismail Saglam, 2019. "The Effect of Awareness and Observability on the Non-contractible Investment of a Regulated Natural Monopoly," Journal of Industry, Competition and Trade, Springer, vol. 19(4), pages 617-639, December.
    16. Committee, Nobel Prize, 2014. "Market power and regulation (scientific background)," Nobel Prize in Economics documents 2014-2, Nobel Prize Committee.
    17. repec:dau:papers:123456789/3860 is not listed on IDEAS
    18. Boggio, Margherita, 2011. "From Reluctant Privatization to Municipal Capitalism: an Overview on Ownership, Political Connections and Decentralization," MPRA Paper 46232, University Library of Munich, Germany.
    19. Nicos Savva & Tolga Tezcan & Özlem Yıldız, 2019. "Can Yardstick Competition Reduce Waiting Times?," Management Science, INFORMS, vol. 65(7), pages 3196-3215, July.
    20. Olivier Cadot & Bernard Sinclair-Desgagné, 1995. "Innovation Under the Threat of Stricter Environmental Standards," CIRANO Working Papers 95s-11, CIRANO.
    21. Bertsch, Joachim & Hagspiel, Simeon, 2015. "Regulation of non-marketed outputs and substitutable inputs," EWI Working Papers 2015-6, Energiewirtschaftliches Institut an der Universitaet zu Koeln (EWI).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jecrev:v:70:y:2019:i:3:d:10.1111_jere.12235. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.