No Free Lunch? Welfare Analysis of Firms Selling Through Expert Intermediaries
83 Pages Posted: 3 Aug 2018 Last revised: 21 Mar 2021
Date Written: March 20, 2021
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: Suggested Citation