Essays on Industrial Organization

Abstract

This dissertation consists of three independent chapters. Chapter 1 examines the role of auction design in managing risk exposure for bidders in public procurement and minimizing costs for the government. I study the mechanism used to procure bridge construction by the Massachusetts Department of Transportation (DOT). I estimate a structural model of equilibrium bidding by risk-averse firms facing uncertainty about the final specification for each project at the time of bidding. I show that the existing mechanism insures risk-averse contractors against large changes in project scope, thereby reducing risk-premiums in bidding and ultimately lowering costs incurred by the DOT. Furthermore, while reducing uncertainty could reduce costs, I find that incentivizing additional competition is a more promising direction for policy intervention.

Chapter 2 examines the extent to which a reference pricing policy could reduce prices for pharmaceutical drugs in the United States. I estimate a structural model of supply and demand for pharmaceuticals in the U.S. and in Canada. I then simulate counterfactuals in which American and Canadian regulators negotiate over prices with pharmaceutical representatives, but the United States constrains the prices that it is willing to accept by the prices set in Canada. I find that reference pricing results in a slight decrease in U.S. prices and a substantial increase in Canadian prices. Consequently, I find modest consumer welfare gains in the U.S., substantial consumer welfare losses in Canada, and a net increase in pharmaceutical firms' profits.

Chapter 3 examines the impact of a monitoring program in which a large US auto-insurer offered drivers a discount for good driving performance, as measured by a telematics device for their first contracted period. I demonstrate reduced form evidence of both adverse selection and moral hazard: drivers who choose to enter the monitoring program have lower average liability claims, but average claims rates are 23\% lower during the monitoring period than after. I estimate a structural model of driver claims and insurance plan choice and simulate several counterfactual regimes with respect to the availability of monitoring. While consumers face a disutility from being monitored, monitoring induces a net social surplus: both firm profits and net consumer welfare improve.