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Market-Based Solutions to Vital Economic Issues
Research
Dec 10, 2015

An Empirical Model of Drug Detailing: Dynamic Competition and Policy Implications

Abstract

The practice of detailing in the marketing of prescription drugs is undergoing significant changes because of restrictions imposed by regulatory policy as well as by access restrictions placed by physicians. To analyze the strategic impact of these restrictions, we develop a structural model of how pharmaceutical firms compete dynamically to schedule detailing to physicians. Detailing activities are known to have significant carry-over effects that are captured in a first-stage model of physicians demand for prescription drugs. We also specify detailing policy functions that describe each firm’s observed detailing actions. We estimate the first-stage models using hierarchical Bayesian frameworks. In a second stage, we estimate a model that describes costs of detailing, assuming that the observed detailing levels are consistent with a Markov perfect Nash equilibrium. The estimated structural model is used to examine the implications of restrictions on the amount of detailing via counterfactual simulations. We find that restriction policies impact firms asymmetrically while increasing the market share of a non-drug-treatment-only prescription option; firms that are strong in detailing and/or rely more on detailing are hurt more. This asymmetry is enhanced when a new brand is strong in detailing. We also find that an unexpected outcome of a policy that imposes a ceiling on detailing frequency is to soften competition between firms, thereby enhancing their profits. These findings provide important insights to the pharmaceutical industry as well as to regulators.

Note: Research papers posted on SSRN, including any findings, may differ from the final version chosen for publication in academic journals.


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