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

95 Pages Posted: 3 Aug 2018 Last revised: 27 Jun 2024

See all articles by Matthew Grennan

Matthew Grennan

National Bureau of Economic Research (NBER); University of California, Berkeley - Haas School of Business

Kyle Myers

Harvard University - Technology & Operations Management Unit

Ashley Swanson

University of Wisconsin - Madison - Department of Economics; NBER

Aaron Chatterji

Duke University - Fuqua School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 28, 2024

Abstract

We study how firms target and influence expert intermediaries. In our 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 case study of an important class of cardiovascular drugs, we estimate heterogeneous effects of payments on prescribing, with firms targeting highly responsive physicians. We also develop a model of supply and demand, which 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. In our estimated model, whether consumers are harmed by payments depends on whether there is substantial under-prescribing due to behavioral or other frictions. In a final exercise, we calibrate such frictions using clinical data and estimate that payments benefit consumers in this case study.

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

JEL Classification: L00, I1, I11, I19

Suggested Citation

Grennan, Matthew and Grennan, Matthew and Myers, Kyle and Swanson, Ashley and Chatterji, Aaron, No Free Lunch? Welfare Analysis of Firms Selling Through Expert Intermediaries (May 28, 2024). Kilts Center at Chicago Booth Marketing Data Center Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3216172 or http://dx.doi.org/10.2139/ssrn.3216172

Matthew Grennan (Contact Author)

University of California, Berkeley - Haas School of Business ( 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 )

Boston, MA 02163
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Ashley Swanson

University of Wisconsin - Madison - Department of Economics ( email )

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Madison, WI 53706
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Aaron Chatterji

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

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