Promotion Spillovers: Drug Detailing in Combination Therapy
University of Connecticut
Purdue University - Krannert School of Management
Pradeep K. Chintagunta
University of Chicago
February 28, 2014
A growing literature has investigated various sources of promotion spillovers. Spillover can be across markets within a brand, across related brands within a firm, across rival brands, through category expansion, and across media and channels. In this paper we examine the spillover effects when products from different firms are consumed in a bundle. Our empirical context is combination therapy, an increasingly important phenomenon in the pharmaceutical industry. In this context the simultaneous prescription of two or more medications from multiple firms leads to complex complementarities and substitution effects of detailing promotion between the drugs involved. Using data from the HIV/AIDS category, a canonical example of combination therapy, we first provide reduced-form evidence for the nature of relationships that exist among the various drugs. We then estimate a formal hierarchical Bayesian logit model across treatment regimens to investigate how the detailing effort for one drug spills over to related drugs.
Combination therapies and spillover effects of detailing create special implications for firms and for policy makers. Based on our estimates for the effectiveness and spillover of detailing, we numerically solve a dynamic oligopoly detailing game to study such managerial and policy implications. For firms, increased detailing of one’s own drug benefits sales of that drug but also those of other drugs in the combination. The latter effect could lead to free riding by the drug benefitting from the spillover and a lowering of its detailing. We focus on situations in which firms have incentives to free ride on others’ detailing efforts, and through counterfactual simulations, we examine how firms can internalize the spillover effects and reduce the incentive for free riding. For policy makers, detailing restrictions are often proposed to increase social welfare by promoting the use of generic drugs. However, in combination therapies generic drugs may benefit from the detailing of complementary branded products. If detailing was curtailed, this may adversely affect prescriptions of the generic drugs as well which runs counter to policy makers’ objectives of promoting usage of generic drugs.
Number of Pages in PDF File: 59
Keywords: pharmaceutical marketing; combination therapy; spillover; drug detailing; dynamic oligopoly game; detailing restrictions
Date posted: March 8, 2014 ; Last revised: September 22, 2015
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