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Payments, promotion, and the purple pill
1Fuqua School of Business, Duke University, Durham, NC, USA.
Health Economics
|December 11, 2014
Summary
Drug demand is highly sensitive to patient copayments, especially when prices differ between competing brands. Higher copayments can lead to significant market share loss for drugs, though physician advertising may mitigate this effect.
Area of Science:
- Health Economics
- Pharmaceutical Market Analysis
- Market Research
Background:
- Understanding price sensitivity in the US drug market is crucial for analyzing competition.
- Existing studies on copayment elasticity often lack data to control for competitor pricing or advertising.
- Previous research focused on uniform copayment changes, not diverging prices.
Purpose of the Study:
- To examine drug demand sensitivity to copayments when prices diverge among competing brands.
- To assess the impact of differential copayments on market share.
- To investigate the role of physician advertising in response to copayment changes.
Main Methods:
- Utilized unique panel data from 77 insurance groups, including copayment and utilization information.
- Incorporated data on pharmaceutical advertising expenditures.
- Analyzed copayment elasticity considering competitor copayments and advertising.
Main Results:
- Drug demand is significantly more sensitive to copayments than previously recognized.
- Drugs with higher copayments than branded competitors face substantial market share erosion.
- Increased physician advertising can offset demand losses but incurs significant costs.
Conclusions:
- Copayment levels are a critical factor in drug market competition.
- Pharmaceutical manufacturers must consider the strategic implications of differential pricing and advertising.
- The findings highlight the need for more sophisticated models to study drug market dynamics.