No Free Lunch? Welfare Analysis of Firms Selling Through Expert Intermediaries

Matthew Grennan, Kyle Myers, Ashley Swanson and Aaron Chatterji

No 24864, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how firms target and influence expert intermediaries. In our empirical context, pharmaceutical manufacturers provide payments to physicians during promotional interactions. We develop an identification strategy based on plausibly exogenous variation in payments driven by differential exposure to spillovers from academic medical centers’ conflict-of-interest policies. Using a detailed case study of an important class of cardiovascular drugs, we estimate heterogeneous effects of payments on prescribing, with firms targeting highly responsive physicians. Our model of supply and demand allows us to quantify how oligopoly prices reduce drug prescribing, and how payments move prescribing closer to the optimal level, but at great financial cost to patients and payers. In our estimated model, consumers are worse off with payments, unless there is substantial underprescribing due to behavioral or other frictions. In a final exercise, we calibrate such frictions using clinical data. We estimate that, in this case study, payments benefit consumers.

JEL-codes: I1 L0 (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-bec, nep-com and nep-hea
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