This paper explores the role of regulation of new product entry when product quality is uncertain but market participants learn over time. We develop a model that captures the fundamental regulatory tradeoff between information generation, access, and risk: weak regulation inhibits learning and exposes consumers to the risk of unproven new products, but overzealous regulation increases entry costs and reduces access to a narrow choice set. Using new data and variation between EU and US medical device regulatory rules, we document patterns consistent with our model, and then take a structural approach to estimate the welfare implications of current and alternative regulatory policies.
Theory offers many explanations for why multiproduct firms dominate a variety of industries, but empirically measuring these forces is complicated by the fact that the scale and scope of the firm are typically endogenous decisions. This paper exploits exogenous variation in firm “multiproductness” induced by differing regulatory regimes in the US and EU to empirically measure the size and sources of multiproduct firm advantages in a medical device market. We find that the average multiproduct device firm enjoys spillovers across its product portfolio that increase the value of a new product introduction by 20.1 percent relative to a new single product firm. The available data suggest that at least part of this effect can be explained by: (1) increased information transmission and (2) greater physical design complementarities among products by multiproduct firms. We discuss these findings in the context of recent questions surrounding innovation, barriers to entry, and conflicts of interest in medical devices.