WORKING PAPERS

  • Unlocking the Hidden Pharmaceutical Financing: Resilient R&D Investment and Malleable Selling Expenses, (with Tianyuan Jiang, Xuan Tian and Xuan Zhang), June. 2025. (To be presented at 2025 CICF.)
​【Abstract】
It has long been well recognized that when firms experience a negative shock, their R&D investment would decrease. However, this paper reveals that R&D investment is more resilient than one would expect when facing revenue losses and market value declines, because firms can optimize their cost structures. Using China’s centralized drug procurement as an exogenous shock, we find that it undermines pharmaceutical firms' revenue and stock market performance. However, despite the well-believed concern that such price-control policies can hinder long-term benefits by restraining firms' R&D investment, we find an increase in firms' R&D intensity. We uncover that this is due to the adjustments in firms’ operational cost structures, particularly a 22.5% reduction in selling expenses. We exclude other alternative channels, such as bond issuance and bank borrowing. Our findings suggest that, through cost reallocation, firms can buffer R&D spending from capital market shocks, challenging conventional views on the primacy of financial constraints in innovation funding.
  • Has the Shortened Drug Distribution Chain Cut Drug Prices? Evidence from the Two-Invoice System in China, (with Xiaoxi Li, Fanyu Liu and Jianye Yan), June 2025, R&R at Journal of Health Economics. 
【Abstract】
Global concerns over rising drug prices have led to regulatory efforts in the pharmaceutical industry targeting price transparency and distribution efficiency. This study examines the impact of China’s Two-Invoice System (TIS), a 2016 reform aimed at reducing drug costs by streamlining the pharmaceutical distribution chain and enhancing price transparency. With a theoretical model, we examine the decision-makings for pharmaceutical manufacturers and distributors on pricing and promotion activities. We predict competing effects on drug prices: while intermediary markups are reduced, the removal of efficient distributors and increased regulatory costs may elevate supply chain expenses. Employing a staggered Difference-in-Differences approach with procurement data from 2015 to 2019, we find that TIS implementation led to a 1.7% increase in average drug prices, contrary to policy expectations. Price increases were more pronounced for lower-priced drugs and in wealthier regions, where supply chain efficiency suffered the most. We also document a significant rise in sales expenses, with manufacturers absorbing promotional costs previously borne by distributors. These findings underscore the unintended inefficiencies of mechanistic regulatory reforms, highlighting the need for a balanced policy design that considers both cost control and market dynamics in healthcare.
  • China’s Centralized Volume-Based Drug Procurement: Effectiveness and Lessons, (with Bin Jiang, Qingyuan Xue, Jiayu Zhang and Xuan Zhang), Dec. 2024.​ (won the best paper at the 7th China Health Economics Forum (2024); to be presented at 2025 China IO conference.)
【Abstract】
Rising prescription drug costs are a significant global issue, with varied policy measures yielding mixed results in containing the costs. In this study, we analyze the impacts of the world’s largest centralized procurement initiative—China’s Centralized Volume-Based Drug Procurement (CVBP)—using unique, comprehensive data from all healthcare institutions in China. Using a staggered difference-in-differences design, we show that CVBP lowers prices of procured drugs by 73%, increases drug utilization by 7.7%, and reduces overall drug expenditure by 70%. The market share of winning (generic) drugs grows by 50%, while it decreases by 12.9% for branded drugs. We also observe a decrease in drug variety, primarily due to exit of high-price drugs. Importantly, price reductions are driven not only by the initial drop of winning drugs but also by decreases among non-winning generics and branded drugs over time. For drug utilization, we examine trade-offs between price and quality. Specifically, unmet medical needs contribute to the increased quantities, as lower prices increase affordability of low-income population. Moreover, switch from branded to generics and manufacturing process change of winning generics are also associated with an increase in drug utilization. Finally, supply reliability also helps to explain the varied responses across hospitals. 
  • SSNDQ Test for Multisided Platforms with Zero Prices, (with Jiong Gong, Yumin Li, and Yanhua Zhang), June 2024.
​【Abstract】
We develop an SSNDQ test based on Critical Loss analysis to identify relevant market in a multi-sided platform environment with zero prices. We develop a simple model that can be implemented in practice, and illustrate the exercise of identifying relevant market under the SSNDQ framework. And we apply our SSNDQ test to a proposed merger in the Chinese live-streaming industry and examine whether this industry would be identified as a relevant product market. Assisted with survey data, we provide a clear answer to the market definition. This is the first time that an SSNDQ test has been applied in practice. 

WORK IN PROGRESS  

  • ​Intellectual Property and Cumulative Innovation, (with Margaret Kyle, Qiu Ju) 2019.
  • The Health Consequences of Pediatric Labeling Changes — Evidence from Pediatric Hospitalization and Adverse Drug Events, (with Mary Olson), March. 2022.
  • ​Venture Capital and Knowledge Transfer, (with Roberta Dessi, Sanxi Li), June 2019.

PUBLICATIONS  

  1. Pharmaceuticals, Incremental Innovation and Market Exclusivity,  International Journal of Industrial Organization, Volume 87, March 2023. (won "The IJIO Best Empirical Paper 2023")
  2. The Impact of Antitrust Regulations on Firm Market Value - Evidence from Chinese and U.S. Internet Platforms, (with Yong Huang, Yanhua Zhang and Shan Zhao), Jan. 2025. forthcoming at Review of Industrial Organization.
  3. New Clinical Information and Physician Prescribing: How Do Pediatric Labeling Changes Affect Prescribing to Children? (with Mary K. Olson),  Health Economics, 30(1): 144-164, January 2021. 
  4. Economic Analysis Under the Anti-Unfair Competition Law in China: Tencent v. Xinhui, (with Vanessa Yanhua Zhang and John Jiong Gong), CPI Antitrust Chronicle, March 2019.​
  5. Multitask Assignments with Adverse Selection, (with Minbo Xu, Sanxi Li), Economics Letters,  181:127-132, August 2019.
  6. Examining Firm Responses to R&D Policy: An Analysis of Pediatric Exclusivity (with Mary K. Olson), American Journal of Health Economics 4(3): 321-357, Summer 2018. 
  7. The Impact of Venture Capital on Innovation, (with Roberta Dessi), in D. Cumming, ed., The Oxford Handbook of Venture Capital, Oxford University Press, Chapter 22, 2012. 
  8. Socio-economic Status and Chronic Diseases: The Case of Hypertension in China (with Xiaoyan Lei, Yaohui Zhao), China Economic Review , 23 (2012) 105-121. 
  9. 双边市场中的排他性交易与补贴：平台竞争与社会福利分析, (合作者：李瑜敏，巩晓劼)，《世界经济文汇》，2024, 01(04): 1-24。
  10. 非正规金融的运行———社会网络的作用, (合作者：尹训东), 《世界经济文汇》, 2017, 1(01),51-68.