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

83 Pages Posted: 3 Aug 2018 Last revised: 21 Mar 2021

See all articles by Matthew Grennan

Matthew Grennan

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Kyle Myers

Harvard University - Technology & Operations Management Unit

Ashley Swanson

Columbia University - Columbia Business School; NBER

Aaron Chatterji

Duke University - Fuqua School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 20, 2021

Abstract

We study how firms target and influence expert intermediaries. In our empirical context, pharmaceutical manufacturers provide payments to physicians during promo- tional interactions. We develop an identification strategy based on plausibly exogenous variation in payments driven by differential exposure to spillovers from academic med- ical centers’ conflict-of-interest policies. Using a detailed case study of an important class of cardiovascular drugs, we estimate heterogeneous effects of payments on pre- scribing, 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.

Keywords: Expert Intermediaries, Conflicts of Interest, Health Care, Pharmaceuticals, Welfare, Decision Errors

JEL Classification: L00, I1, I11, I19

Suggested Citation

Grennan, Matthew and Myers, Kyle and Swanson, Ashley and Chatterji, Aaron, No Free Lunch? Welfare Analysis of Firms Selling Through Expert Intermediaries (March 20, 2021). Available at SSRN: https://ssrn.com/abstract=3216172 or http://dx.doi.org/10.2139/ssrn.3216172

Matthew Grennan (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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National Bureau of Economic Research (NBER) ( email )

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Kyle Myers

Harvard University - Technology & Operations Management Unit ( email )

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Ashley Swanson

Columbia University - Columbia Business School ( email )

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NBER ( email )

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Aaron Chatterji

Duke University - Fuqua School of Business ( email )

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