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

Management Science, 62(8), 2321-2340, 2016

44 Pages Posted: 3 Sep 2013 Last revised: 10 Aug 2016

See all articles by Qiang Liu

Qiang Liu

Purdue University - Krannert School of Management

Sachin Gupta

Cornell University - Samuel Curtis Johnson Graduate School of Management

Sriram Venkataraman

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Hongju Liu

University of Connecticut

Date Written: April 29, 2015

Abstract

The practice of detailing in the marketing of prescription drugs is undergoing significant changes. For instance, in September 2013, the Physician Payment Sunshine Act went into full effect. The accompanying transparency requirements have prompted physician practices and hospitals to severely restrict pharmaceutical sales representatives’ direct access to their physicians. Despite all the attention in the popular press, scant scholarly research has investigated how these restrictions on physician access impact physician prescription behavior and competitive detailing to physicians.

To analyze the 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. 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 would increase the market share of a non-drug-treatment-only option but impact firms asymmetrically; firms that are strong in detailing and/or rely more on detailing would be hurt more. Unexpectedly, a policy that imposes a ceiling on detailing frequency could significantly reduce detailing of all firms in the market, including those firms with average detailing levels below the ceiling, and effectively would soften competition be-tween firms and enhance their profits.

Keywords: pharmaceutical marketing, detailing competition, dynamic oligopoly game, dynamic programming, detailing cost, restrictions on detailing, regulation

JEL Classification: L13

Suggested Citation

Liu, Qiang and Gupta, Sachin and Venkataraman, Sriram and Liu, Hongju, An Empirical Model of Drug Detailing: Dynamic Competition and Policy Implications (April 29, 2015). Management Science, 62(8), 2321-2340, 2016. Available at SSRN: https://ssrn.com/abstract=2320153 or http://dx.doi.org/10.2139/ssrn.2320153

Qiang Liu (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Sachin Gupta

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

Sriram Venkataraman

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States

Hongju Liu

University of Connecticut ( email )

2100 Hillside Rd, U-1041
Storrs, CT 06269-1063
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
258
rank
112,369
Abstract Views
1,489
PlumX Metrics