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
Date Written: April 29, 2015
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: Suggested Citation