Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices
Matthew Grennan, Robert J. Town
American Economic Review · 2020 · Volume 110 · Issue 1
Abstract
We study the impact of regulating product entry and quality information requirements on an oligopoly equilibrium and consumer welfare. Product testing can reduce consumer uncertainty, but also increase entry costs and delay entry. Using variation between EU and US medical device regulations, we document patterns consistent with valuable learning from more stringent US requirements. To derive welfare implications, we pair the data with a model of supply, demand, and testing regulation. US policy is indistinguishable from the policy that maximizes total surplus in our estimated model, while the European Union could benefit from more testing. "Post-market surveillance" could further increase surplus.
Keywords
Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection, Health: Government Policy, Regulation, Public Health, Oligopoly and Other Imperfect Markets, Economics of Regulation, Other Machinery, Business Equipment, Armaments, Innovation and Invention: Processes and Incentives, Technological Change: Government Policy
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