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Baik, Min Kyeong

University of British Columbia

This thesis is a collection of three empirical studies on competition and innovation. The essays study how firms respond to competitive shocks in different contexts and understand their strategic motives. The first essay examines the impact of mergers on innovation outcomes in the context of the pharmaceutical industry. By exploiting a novel dataset at the drug-disease level, the essay finds that mergers harm the innovation outcomes of the drug projects acquired in the deals. The existence of overlap in drug portfolios does not drive the negative impact of mergers. The negative effects of mergers are driven by their negative impact on the scientific process of drug development, not on commercialization activities. The results suggest that mergers harm innovation because of the organizational challenges faced by firms during the integration process rather than because of a lessening of competition. The second essay analyzes and quantifies the impact of weakened intellectual property rights on innovation using the pharmaceutical industry data. Starting in 1997, countries like South Africa and Brazil attempted to procure low-cost HIV drugs through compulsory licensing, triggering a controversial dispute between these countries and pharmaceutical companies. The essay uses this shock to the strength of patent rights as the basis of the identification strategy and applies the synthetic control method. The essay finds a large negative effect on the development of HIV drug therapies, suggesting a dynamic trade-off in using compulsory licensing to deal with public health crises. The third essay examines the impact of competition on price dispersion. The essay exploits the expansion of Southwest Airlines to capture potential and actual competition. When incumbent carriers face the risk of entry by Southwest Airlines, price dispersion declines in that route. The effect is driven by a sharp decrease in the 90th percentile of the price distribution, suggesting incumbents' motive to make entry less attractive. Incumbents cut down the 10th percentile of the price distribution after actual entry by Southwest Airlines, increasing price dispersion to its pre-entry threat levels. It is likely a strategic response of incumbents to avoid the loss of price-sensitive consumers.

Text

2023-07-20

Attribution-NonCommercial-NoDerivatives 4.0 International

http://hdl.handle.net/2429/85284

Business Administration - Strategy and Business Economics

University of British Columbia

UBCV

http://creativecommons.org/licenses/by-nc-nd/4.0/