Download
slide1 n.
Skip this Video
Loading SlideShow in 5 Seconds..
Regulaci n econ mica y social PowerPoint Presentation
Download Presentation
Regulaci n econ mica y social

Regulaci n econ mica y social

134 Views Download Presentation
Download Presentation

Regulaci n econ mica y social

- - - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript

    1. Regulacin econmica y social En este curso diferenciaremos entre dos tipos de regulacin gubernamental: Regulacin econmica la regulacin en el comportamiento de industrias caracterizadas por falta de competencia (tradicionalmente monopolios nacionales). e.g. Tarifas de electricidad. Regulacin social la regulacin en el comportamiento de individuos o empresas con respecto a las implicaciones ambientales y de salud, seguridad en la produccin y consumo de bienes y servicios (tradicionalmente externalidades). e.g. emisiones de plantas de energa.

    2. Objetivo de la Regulacin Econmica El regulador debe de maximizar el inters nacional sujeto al mandato legislativo. Obstculos: Informacin asimtrica. Racionalidad limitada. Errores Tpicos: Error tipo I: Regular cuando lo mejor es no regular. Error tipo II: No regular cuando lo mejor es regular. Costo del Error I > Costo del Error II. Otras conductas: Oportunismo hold up. Consistencia intertemporal.

    3. Ley de Aeropuertos

    4. Ley de Aviacin Civil

    5. Ley de Caminos, Puentes y Autotransporte Federal

    6. Ley de Puertos

    7. Ley Reglamentaria del Servicio Ferroviario

    9. Qu es la regulacin de una industria? La regulacin gubernamental de la industria limita el comportamiento de una empresa, a travs de mecanismos de fijacin de precios, el control de la cantidad, la calidad de bienes y servicios producidos o la entrada de nuevas empresas. E.g. Fijando tarifas parta el servicio elctrico E.g. fijando estndares de calidad para los cinturones de seguridad de los automviles.

    10. Eficiencia y Progreso Tecnolgico La regulacin econmica deber promover la eficiencia y el progreso tecnolgico. La eficiencia esta relacionada con la optimizacin del uso de los recursos y la tecnologa existentes. El progreso tecnolgico es un condicionante para la asignacin de recursos a la adopcin o desarrollo de nuevas tecnologas. La eficiencia es esttica, el progreso tecnolgico es dinmico. Diferentes tipos de estructuras de mercado pueden impactar la eficiencia y el progreso tecnolgico de manera diferenciada.

    13. Industrias tpicamente reguladas Industria considerada. Electricidad TV restringida Telefona tradicional Telefona inalmbrica Autotransporte Ferrocarriles Puertos Aerolneas Aeropuertos Farmacutica Distribucin de Agua Potable Intervencin regulatoria. Regulacin de Precios Regulacin a la Entrada Regulacin de Riesgos Subasta (Licitacin) Desregulacin Desintegracin vertical Subsidios Cruzados Propiedad Intelectual

    14. Fallas de Mercado y Falla Regulatoria

    15. Credibilidad Regulatoria

    16. Teoras de la Regulacin Anlisis Normativo de la Regulacin. En algunos mercados la competencia no es posible o la competencia no necesariamente incrementa el bienestar. e.g. bajo monopolio natural o externalidades Bajo monopolio natural la eficiencia productiva sugiere que debemos tener una empresa y un Precio = Costo Marginal, pero esto no sucede en un mercado sin intervencin. El anlisis normativo sugiere que en esta circunstancia debemos tener regulacin. Esto sugiere un motivo de bienestar social de la regulacin.

    17. Teoras de la Regulacin Teora Positiva de la Regulacin. La regulacin redistribuye la riqueza La conducta de los legisladores est dirigida por su deseo de mantener su posicin. Los grupos de inters compiten ofreciendo soporte poltico a cambio de legislacin favorable. La regulacin es suministrada en respuesta a la propia demanda de la industria por regulacin. Las agencias regulatorias son creadas por legislaturas capturadas. Las agencias regulatorias pueden ser controladas por la industria. Se enfoca slo en los roles de los grupos de inters y asume que compiten entre ellos para ganar mayor influencia en el regulador.

    20. Economies of scale Definition: average costs fall with an increase in output Represented by the scale economy index

    21. Minimum efficient scale: output at which economies of scale are first exhausted It may be cheaper to have spare capacity than operate up to capacity

    24. Natural Monopoly

    25. Natural Monopoly

    29. Economies of Scope Formal definition

    30. Economies of scale and multiple products Definition of economies of scale with a single product.

    35. Widely-used Access Pricing Mechanisms Fully-distributed cost mechanism. Entrant pays the incumbent: the incumbent marginal cost plus his share in the network maintenance costs Does not discourage entrance of inefficient entrants Incumbent has no incentive to cut cost. Efficient Component Pricing Rule (ECPR): Entrant pays for Incumbents marginal loss from losing one call to the entrant. Why is it so efficient? Because it attracts only those entrants who are more efficient than the incumbent!

    39. Multiproduct Monopoly Regulation

    40. Objetivos de la Regulacin Tarifaria

    41. Conceptos de Costos para Regulacin Tarifaria

    42. Efectos de la Regulacin Tarifaria

    43. Costos Fijos y Regulacin With Decreasing Average Cost, a single price at marginal cost (P=MC) loses profits Pricing at Average Cost causes a DWL Separating markets and pricing markets differentially can lead to prices which cover total cost and minimize deadweight loss

    44. Cost Based Regulation Rate of Return Regulation = Cost of Service Regulation ROR = (Total Revenue - Total Cost)/Invested Capital or = Net Income /Invested Capital or = Net Income / Equity Pricing at fair rates can impart significant risk. What is fair?. After they have sunk their capital they will be limited in the prices they can charge and... They could be subject to possibly onerous obligations to serve and to guarantee security, stability and safety. Profit is the direct index of the private firms degree of success. In fact, the evaluation of excess profit is a central task in applying policies and policies affect profits in ways which need to be understood. The rate of return must be at least as high as the cost of capital it uses, which is the return available to investors on other comparable investments. A deficient rate of return will deter investors so that the capital needed to maintain or enlarge the firm cannot be attracted. The rate of return varies with the level of risk. For most firms it is in the range of 8 - 15 percent. Effective competition usually prevents profit rates from being sustained at higher levels. Higher profit rates usually contain an element of excess profits, which is an excess over the cost of capital. For example, if a firms profit is 20 percent while its cost of capital is 12 percent then 7 percent difference is excess profitProfit is the direct index of the private firms degree of success. In fact, the evaluation of excess profit is a central task in applying policies and policies affect profits in ways which need to be understood. The rate of return must be at least as high as the cost of capital it uses, which is the return available to investors on other comparable investments. A deficient rate of return will deter investors so that the capital needed to maintain or enlarge the firm cannot be attracted. The rate of return varies with the level of risk. For most firms it is in the range of 8 - 15 percent. Effective competition usually prevents profit rates from being sustained at higher levels. Higher profit rates usually contain an element of excess profits, which is an excess over the cost of capital. For example, if a firms profit is 20 percent while its cost of capital is 12 percent then 7 percent difference is excess profit

    45. Regulatory Lag The tendency of regulated rates to adjust slowly to changes in cost. Causes the actual rate of return earned by the utility to diverge from the regulator pre-determined fair rate of return. When prices are fixed utilities can earn a profit by cutting costs. The regulator we have to define how prices are to be determined what are enough revenues how do we define costs what is a reasonable quality of service what is a fair return

    46. How are regulated prices determined Establish the Revenue Requirement R = where: R is equal to the sum of piqi over the entire product set. s is the allowed rate of return. RB is the rate base which is a measure of value of the firms investment: Original Cost. Most Efficient Cost. Replacement Cost. Market Value.

    47. Equilibrio Econmico Donde: K0= Capital Invertido. RR = Ingreso Requerido. OPEX = Gastos Operativos. I = Inversiones peridicas. T = Impuestos. D = Derechos. Kn = Capital Base Regulatoria. t = Rezago Regulatorio. r = tasa interna de retorno.

    48. Allowed Rate of Return: Methodology Regulator determines allowed rate of return. Regulator sets prices as a function of firms revenue requirements. Operating costs + Rate of Return * Rate base Cost of capital Debt Equity Risk Cost of equity: CAPM

    49. Debt or bond finance Guaranteed interest payments (before equity holders) Tax deductible Normally lower cost than equity Cost of debt = risk free rate plus risk premium Risk free rate measured by gov's stocks Risk premium depends on rating assessed by rating agencies The perceived rick of debt will depend on the gearing of the company. i.e. ratio of debt to debt plus equity. This limits use of cheaper debt finance.The perceived rick of debt will depend on the gearing of the company. i.e. ratio of debt to debt plus equity. This limits use of cheaper debt finance.

    50. Calculating the cost of capital Weighted average cost of capital = cost of debt ? proportion of debt + cost of equity ? proportion of equity in financing Equity risk premium = market risk premium ? equity beta Beta measures the relative risk of the companys equity with that of the market as a whole For regulated companies Beta should be <1 to calculate the required rate of return on an asset (ki): ki = RF +?i [ E(RM) - RF ] Risk-free rate (RF) Risk premium (?i [ E(RM) - RF ]) The greater the systematic risk, the greater the required return These arithmetic calculations are typically checked against views of City professionals on returns required for regulated companies These arithmetic calculations are typically checked against views of City professionals on returns required for regulated companies

    51. Recent examples of the cost of capital

    52. Averch-Johnson: Theoretical Model Monopoly firm Production Function with 2 inputs (capital, labor) Objective: profit maximize subject to regulatory constraint gross revenue: R= PQ costs: C= wL + rK benefits: ?= P(Q(K,L))?Q(K,L)-rK-wL ?= (K,L)

    53. Rate of Return Regulation

    55. The Averch Johnson Effect

    56. Regulacin del Monopolio Natural.

    57. Summary

    58. Non Lineal Tariffs Non-linear price consisting of a fixed fee regardless of consumption and a price per unit. It is possible to have efficient pricing if P=MC and fixed fee covers the fixed cost of a natural monopoly. C = F0 + cq = A + pq = F0/N + cq. If A < (Si pq) If A > (Si pq), Solution: Charge different fixed fees to different customers. Optimal two-part tariff comes from balancing efficiency losses due to losing customers from a fixed fee against increased consumption losses as price/unit increases above MC.

    59. Two-Part Tariff - identical consumers

    60. Two-Part Tariff - different consumers

    64. Fixed Cost, Profit Constraint and Two Markets

    65. Ramsey Pricing To Minimize the Deadweight Loss, charge different prices in different markets so that where Pi = price in market segment i MCi = marginal cost in segment i ei = price elasticity in segment i l = chosen to be between 0 and 1 to break even if l = 1, we charge the profit maximizing prices if l = 0, we charge marginal cost prices

    67. Ramsey Pricing A. Maximize total surplus with the constraint that the firm must break-even. B. Welfare will be maximized when prices exceed marginal production costs in direct proportion to the value buyers attach to a particular good or service, varies inversely with buyers' elasticity of demand.

    68. Ramsey Pricing Example - Two product Natural Monopoly 1. Total Cost: C=1800 + 20X + 20Y 2. Market Demand for goods X and Y are X=100-Px Y=120-2Py Demands are independent 3. MCx=MCy=20; Marginal cost pricing covers variable costs but not 1800 4. So how do we cover the 1800? 5. Increase the price of X and Y until Revenues = Cost.

    69. Ramsey Pricing vs Distributed Cost Fully Distributed Cost. Common Cost distributed on the basis of some physical measure of utilization or in proportion to the cost that can be assigned to the services provided. Example: 75% attributed to X and 25% attributed to Y. ACx = 1350/x + 20, ACy = 450/y + 20 Px = ACx , Py = ACy X = 55.8, Px = 44.2 Y = 66.5, Py = 26.7 Total revenues equal Total Costs but no basis to efficient prices. Arbitrary cost allocation.

    72. Subsidios Cruzados

    73. Subsidios Cruzados Stand alone costs: Cx = 1200 + 20x, Cy = 1000 + 20y At X = 55.8 and Y = 66.5 Cx/x = 41.5 and Cy/y = 35 Cx/x < Px and Cy/y > Py Average incremental cost: For X: 800/x + 20 At X = 55.8, AICx = 34.3 AICx < Px For Y: 600/x + 20 At Y = 66.5, AICy = 29 AICy > Py No subsidy free prices ! Ramsey prices = subsidy free prices

    74. Subsidios Cruzados

    75. Franchise Bidding Demsetz (1968). Competitive bidding to award the provision of service to the lowest bid. Competition for the market as substitute for competition within the market. The government as an auctioneer rather than a regulator. Firm with the lowest AC is the franchise owner, the most efficient outbid the rivals. Considerations for other variables like quality or non linear prices schemes make more complex the winning criteria. Entrants are in disadvantage even when are more efficient. Optimal Auction vs. Optimal Regulation.

    76. Franchise Bidding The franchise contract resulting from optimal auction in a contract partially contingent on realized costs. Optimal Auction: Franchise awarded to the firm with the lowest cost. A high cost firm makes zero profits. The rent enjoyed by a low cost firm decreases with the numbers of bidders. The prices that the winning firm charges do not depend on the number of bidders. However, it is more relevant to markets closer to contestability. It ignores implications from long-lived sunk cost, asymmetric information, strategic gaming, changing technology, and incomplete contracts. Once-for-all auction lead to inefficient contracts and not credible. Recommendable to repeated fixed price short term contract.

    77. Yardstick Competition Definition: The performance of a regulated firm is compared against a group of comparable firms. A. Find comparable firms group and calculate their average unit costs as performance benchmark. B. Firms reap benefits if they can cut costs below the average of the comparable firms. C. Problems Must be a sufficiently large sample of firms Identical demand and cost conditions. Electric Utilities in the US and Water Utilities in UK.

    78. Yardstick Competition Price determination under Yardstick.

    79. Yardstick Competition

    80. Relative price regulation in practice Allowable prices depend on the average profits of other regulated firms rather than own profits (Mayer & Vickers, 1996); this solves the ratchet dilemma. The solution to the ratchet effect is to make better use of the range of comparative information available to regulate firms, not to delay passing on cost efficiencies to consumers through price reductions (e.g. sliding scale, profit sharing etc). Comparative analysis between firms within the same regulatory system Requires similar business in the same market (water & electricity distribution industries) Price cut set equal to the average industry cost in last year The greater the number, the stronger the incentive power for cost reduction Mimics the operation of competitive markets by making companies compete on each others cost performance

    81. Price Cap Regulation Specifies a rate at which the prices must decline, on average, after inflation. Provide incentives for cost reduction and technological innovation. Rate of prices decline is divorced from firms costs and earnings therefore the benefits come from cost reductions. The rate at which inflation-adjusted prices must decline is referred as the X factor or productivity factor. If X factor is too small, the regulated firm will earn excessive profit. If is too large, the financial integrity can be threatened. X factor not linked to firm actual cost.

    82. Price Cap Regulation

    84. Precios Tope vs. Regulacin en base a costos

    85. Precios Tope vs. Regulacin en base a costos

    86. Price Cap Regulation Crucial to guaranteeing strong incentives are: Commitment to not raise or lower prices the firm is allowed to change. The duration price-cap contract should be long enough so the incentive for long-lived investment and reap efficiency gains. Typical form: ?%P = ? - X Generic form: ?%P = ? - X = ? - {[T-Te]+[We-W]} X factor requires computing two growth differentials for the industry and the economy as a whole: The difference between the rate of technical change and the economy total productivity factor. The difference between the rate of change of the input price index and the general index prices.

    87. Price Cap Regulation Example: Two inputs: capital and labor Capital price decreases at a rate of 2% annually. Labor price increases at a rate of 4% annually. Capital cost share in the firm: 75%. Capital cost share in the economy: 25%. Industry = 0.75(-2%) + 0.25(4%) = -0.5% Economy = 0.25(-2%) + 0.75(4%) = 2.5% X factor ? 3% If the firm is able to beat the cap then it is able to retain those profits until the next review.

    88. Price Cap Regulation Example: The expected annual rate of productivity in the regulated sector is 2%. The rate of growth in the economy is 1%. Input prices in the regulated sector increase 0.5% annually. Input prices elsewhere in the economy is 1.5% X factor should be X = (2-1)+(1.5-0.5) = 2% If the regulated firm faces lower input price growth rate and /or capable of archiving higher rates of productivity growth, then the growth rate in regulated prices should be restricted below economy-wide inflation rate.

    89. Price Cap Regulation

    90. Price Caps en Prctica.

    93. Vertical Regulation

    94. Whats a margin squeeze? Definition: A vertically integrated firm holding a dominant position in the upstream market prevents its (non-vertically integrated) downstream competitors from achieving an economically viable price-cost margin. Costs yielding benefits over different time periods: Freeserve Nov 2003 decision: 5.14 65% of innovations in pharmaceuticals: The findings of these studies are in accordance with an earlier study performed by the British economists Taylor and Silberston. Based on a survey of UK R&D managers, they estimated that pharmaceutical R&D expenditures would be reduced by 64 percent in the absence of patent protections. By contrast, the corresponding reduction was only 8 percent across all industries. Similar findings were reported by Edwin Mansfield from a survey of the research directors of 100 U.S. corporationsEdwin Mansfield surveyed the R&D directors of 100 U.S. corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceuticals, the value was 60 percent, while the average across all industries was 14 percent. H. Grabowski, Duke University Working Paper, July 2002; E. Mansfield, "Patents and Innovation: An Empirical Study," 32 Management Science 173, 175 (1986); and Testimony of the Biotechnology Industry Organization on Competition & Intellectual Property Law and Policy in the Knowledge E-Based Economy, US Federal Trade Commission, 2002, at p. 3 and footnote 13. Costs yielding benefits over different time periods: Freeserve Nov 2003 decision: 5.14 65% of innovations in pharmaceuticals: The findings of these studies are in accordance with an earlier study performed by the British economists Taylor and Silberston. Based on a survey of UK R&D managers, they estimated that pharmaceutical R&D expenditures would be reduced by 64 percent in the absence of patent protections. By contrast, the corresponding reduction was only 8 percent across all industries. Similar findings were reported by Edwin Mansfield from a survey of the research directors of 100 U.S. corporationsEdwin Mansfield surveyed the R&D directors of 100 U.S. corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceuticals, the value was 60 percent, while the average across all industries was 14 percent. H. Grabowski, Duke University Working Paper, July 2002; E. Mansfield, "Patents and Innovation: An Empirical Study," 32 Management Science 173, 175 (1986); and Testimony of the Biotechnology Industry Organization on Competition & Intellectual Property Law and Policy in the Knowledge E-Based Economy, US Federal Trade Commission, 2002, at p. 3 and footnote 13.

    95. Whats a margin squeeze? Predation: It can do so by charging a downstream price that is too low relative to the input price, with the result of driving out some or all downstream rivals, or at least significantly weakening their competitive positions. Costs yielding benefits over different time periods: Freeserve Nov 2003 decision: 5.14 65% of innovations in pharmaceuticals: The findings of these studies are in accordance with an earlier study performed by the British economists Taylor and Silberston. Based on a survey of UK R&D managers, they estimated that pharmaceutical R&D expenditures would be reduced by 64 percent in the absence of patent protections. By contrast, the corresponding reduction was only 8 percent across all industries. Similar findings were reported by Edwin Mansfield from a survey of the research directors of 100 U.S. corporationsEdwin Mansfield surveyed the R&D directors of 100 U.S. corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceuticals, the value was 60 percent, while the average across all industries was 14 percent. H. Grabowski, Duke University Working Paper, July 2002; E. Mansfield, "Patents and Innovation: An Empirical Study," 32 Management Science 173, 175 (1986); and Testimony of the Biotechnology Industry Organization on Competition & Intellectual Property Law and Policy in the Knowledge E-Based Economy, US Federal Trade Commission, 2002, at p. 3 and footnote 13. Costs yielding benefits over different time periods: Freeserve Nov 2003 decision: 5.14 65% of innovations in pharmaceuticals: The findings of these studies are in accordance with an earlier study performed by the British economists Taylor and Silberston. Based on a survey of UK R&D managers, they estimated that pharmaceutical R&D expenditures would be reduced by 64 percent in the absence of patent protections. By contrast, the corresponding reduction was only 8 percent across all industries. Similar findings were reported by Edwin Mansfield from a survey of the research directors of 100 U.S. corporationsEdwin Mansfield surveyed the R&D directors of 100 U.S. corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceuticals, the value was 60 percent, while the average across all industries was 14 percent. H. Grabowski, Duke University Working Paper, July 2002; E. Mansfield, "Patents and Innovation: An Empirical Study," 32 Management Science 173, 175 (1986); and Testimony of the Biotechnology Industry Organization on Competition & Intellectual Property Law and Policy in the Knowledge E-Based Economy, US Federal Trade Commission, 2002, at p. 3 and footnote 13.

    96. Whats a margin squeeze? Vertical foreclosure / Refusal to deal: It can do so by charging a wholesale price that is too high relative to the downstream price, with the result of driving out some or all downstream rivals, or at least significantly weakening their competitive positions. Costs yielding benefits over different time periods: Freeserve Nov 2003 decision: 5.14 65% of innovations in pharmaceuticals: The findings of these studies are in accordance with an earlier study performed by the British economists Taylor and Silberston. Based on a survey of UK R&D managers, they estimated that pharmaceutical R&D expenditures would be reduced by 64 percent in the absence of patent protections. By contrast, the corresponding reduction was only 8 percent across all industries. Similar findings were reported by Edwin Mansfield from a survey of the research directors of 100 U.S. corporationsEdwin Mansfield surveyed the R&D directors of 100 U.S. corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceuticals, the value was 60 percent, while the average across all industries was 14 percent. H. Grabowski, Duke University Working Paper, July 2002; E. Mansfield, "Patents and Innovation: An Empirical Study," 32 Management Science 173, 175 (1986); and Testimony of the Biotechnology Industry Organization on Competition & Intellectual Property Law and Policy in the Knowledge E-Based Economy, US Federal Trade Commission, 2002, at p. 3 and footnote 13. Costs yielding benefits over different time periods: Freeserve Nov 2003 decision: 5.14 65% of innovations in pharmaceuticals: The findings of these studies are in accordance with an earlier study performed by the British economists Taylor and Silberston. Based on a survey of UK R&D managers, they estimated that pharmaceutical R&D expenditures would be reduced by 64 percent in the absence of patent protections. By contrast, the corresponding reduction was only 8 percent across all industries. Similar findings were reported by Edwin Mansfield from a survey of the research directors of 100 U.S. corporationsEdwin Mansfield surveyed the R&D directors of 100 U.S. corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceuticals, the value was 60 percent, while the average across all industries was 14 percent. H. Grabowski, Duke University Working Paper, July 2002; E. Mansfield, "Patents and Innovation: An Empirical Study," 32 Management Science 173, 175 (1986); and Testimony of the Biotechnology Industry Organization on Competition & Intellectual Property Law and Policy in the Knowledge E-Based Economy, US Federal Trade Commission, 2002, at p. 3 and footnote 13.

    97. Nihil novum sub sole Margin squeeze Predation Refusal to deal Costs yielding benefits over different time periods: Freeserve Nov 2003 decision: 5.14 65% of innovations in pharmaceuticals: The findings of these studies are in accordance with an earlier study performed by the British economists Taylor and Silberston. Based on a survey of UK R&D managers, they estimated that pharmaceutical R&D expenditures would be reduced by 64 percent in the absence of patent protections. By contrast, the corresponding reduction was only 8 percent across all industries. Similar findings were reported by Edwin Mansfield from a survey of the research directors of 100 U.S. corporationsEdwin Mansfield surveyed the R&D directors of 100 U.S. corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceuticals, the value was 60 percent, while the average across all industries was 14 percent. H. Grabowski, Duke University Working Paper, July 2002; E. Mansfield, "Patents and Innovation: An Empirical Study," 32 Management Science 173, 175 (1986); and Testimony of the Biotechnology Industry Organization on Competition & Intellectual Property Law and Policy in the Knowledge E-Based Economy, US Federal Trade Commission, 2002, at p. 3 and footnote 13. Costs yielding benefits over different time periods: Freeserve Nov 2003 decision: 5.14 65% of innovations in pharmaceuticals: The findings of these studies are in accordance with an earlier study performed by the British economists Taylor and Silberston. Based on a survey of UK R&D managers, they estimated that pharmaceutical R&D expenditures would be reduced by 64 percent in the absence of patent protections. By contrast, the corresponding reduction was only 8 percent across all industries. Similar findings were reported by Edwin Mansfield from a survey of the research directors of 100 U.S. corporationsEdwin Mansfield surveyed the R&D directors of 100 U.S. corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceuticals, the value was 60 percent, while the average across all industries was 14 percent. H. Grabowski, Duke University Working Paper, July 2002; E. Mansfield, "Patents and Innovation: An Empirical Study," 32 Management Science 173, 175 (1986); and Testimony of the Biotechnology Industry Organization on Competition & Intellectual Property Law and Policy in the Knowledge E-Based Economy, US Federal Trade Commission, 2002, at p. 3 and footnote 13.

    98. The sacrifice fallacy The claim that margin squeeze is different than predation because it involves no sacrifice is incorrect True p1 < w implies no direct losses for vertically integrated firm But there is an opportunity cost, w, for each unit not sold to downstream competitor And that opportunity cost may be very large when the wholesale price is above the upstream marginal cost And even larger if D2 sells differentiated products and/or is more cost efficient Chicago critique Costs yielding benefits over different time periods: Freeserve Nov 2003 decision: 5.14 65% of innovations in pharmaceuticals: The findings of these studies are in accordance with an earlier study performed by the British economists Taylor and Silberston. Based on a survey of UK R&D managers, they estimated that pharmaceutical R&D expenditures would be reduced by 64 percent in the absence of patent protections. By contrast, the corresponding reduction was only 8 percent across all industries. Similar findings were reported by Edwin Mansfield from a survey of the research directors of 100 U.S. corporationsEdwin Mansfield surveyed the R&D directors of 100 U.S. corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceuticals, the value was 60 percent, while the average across all industries was 14 percent. H. Grabowski, Duke University Working Paper, July 2002; E. Mansfield, "Patents and Innovation: An Empirical Study," 32 Management Science 173, 175 (1986); and Testimony of the Biotechnology Industry Organization on Competition & Intellectual Property Law and Policy in the Knowledge E-Based Economy, US Federal Trade Commission, 2002, at p. 3 and footnote 13. Costs yielding benefits over different time periods: Freeserve Nov 2003 decision: 5.14 65% of innovations in pharmaceuticals: The findings of these studies are in accordance with an earlier study performed by the British economists Taylor and Silberston. Based on a survey of UK R&D managers, they estimated that pharmaceutical R&D expenditures would be reduced by 64 percent in the absence of patent protections. By contrast, the corresponding reduction was only 8 percent across all industries. Similar findings were reported by Edwin Mansfield from a survey of the research directors of 100 U.S. corporationsEdwin Mansfield surveyed the R&D directors of 100 U.S. corporations on what fraction of the inventions they introduced between 1981 and 1983 would not have been developed without patent protection. For pharmaceuticals, the value was 60 percent, while the average across all industries was 14 percent. H. Grabowski, Duke University Working Paper, July 2002; E. Mansfield, "Patents and Innovation: An Empirical Study," 32 Management Science 173, 175 (1986); and Testimony of the Biotechnology Industry Organization on Competition & Intellectual Property Law and Policy in the Knowledge E-Based Economy, US Federal Trade Commission, 2002, at p. 3 and footnote 13.

    99. Vertical Regulation