Discounts Shift the Demand Curve: Evidence from Life-Saving Medications

39 Pages Posted: 17 Dec 2020 Last revised: 19 Sep 2023

See all articles by Matthew Jordan

Matthew Jordan

Yale University

Bouke Klein Teeselink

King's College London; Yale School of Management

Nicholas Adolph

IQVIA

Shane Frederick

Yale School of Management

Date Written: March 23, 2022

Abstract

Patients are often uncertain about the cost of a medication until they arrive at the pharmacy to pick it up. The ultimate out-of-pocket cost for patients is sometimes reduced by copay cards: manufacturer-issued coupons sent to pharmacies, physicians, or patients. Using a data set containing transactions from ~85% of US pharmacies, we find that copay cards increase pick-up rates of prescribed medications even when the ultimate out-of-pocket price remains the same. In other words, copay card discounts not only increase consumption by lowering price, they shift the entire demand curve by introducing transaction utility to the purchase decision, thereby increasing demand at every price level.

Keywords: transaction utility, demand curve shift, consumer behavior, pharmaceuticals

JEL Classification: D01, D91, I12

Suggested Citation

Jordan, Matthew and Klein Teeselink, Bouke and Adolph, Nicholas and Frederick, Shane, Discounts Shift the Demand Curve: Evidence from Life-Saving Medications (March 23, 2022). Available at SSRN: https://ssrn.com/abstract=3725906 or http://dx.doi.org/10.2139/ssrn.3725906

Matthew Jordan (Contact Author)

Yale University ( email )

493 College St
New Haven, CT CT 06520
United States

Bouke Klein Teeselink

King's College London ( email )

Strand Building
London
United Kingdom

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

Nicholas Adolph

IQVIA ( email )

Frankfurt
Germany

Shane Frederick

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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