Dokument: Advertising, Competition, and Regulation in the Pharmaceutical Industry
| Titel: | Advertising, Competition, and Regulation in the Pharmaceutical Industry | |||||||
| URL für Lesezeichen: | https://docserv.uni-duesseldorf.de/servlets/DocumentServlet?id=36768 | |||||||
| URN (NBN): | urn:nbn:de:hbz:061-20160111-154207-1 | |||||||
| Kollektion: | Dissertationen | |||||||
| Sprache: | Englisch | |||||||
| Dokumententyp: | Wissenschaftliche Abschlussarbeiten » Dissertation | |||||||
| Medientyp: | Text | |||||||
| Autor: | Dr. Suppliet, Moritz [Autor] | |||||||
| Dateien: |
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| Beitragende: | Prof. Dr. Tomaso Duso [Gutachter] Prof. Dr. Annika Herr [Gutachter] | |||||||
| Dewey Dezimal-Klassifikation: | 300 Sozialwissenschaften, Soziologie » 330 Wirtschaft | |||||||
| Beschreibung: | Using the tools of empirical industrial organization, this thesis analyzes the pharmaceutical industry. Whether competition and regulation in pharmaceutical markets lead to efficient outcomes is a central question for health policy. Particularly, I focus on welfare effects and price changes due to policies concerned with advertising, parallel trade, and cost-sharing. Various forms of industry regulation trade off consumer surplus, for example via lower prices, and profits, for example via returns to investments. The welfare effects of policy interventions calculated with full models of demand and supply, provide useful guidance for optimal regulation. The field of empirical industrial organization studies the structure of industries in the economy and the behavior of consumers and firm strategies. Recent advances in estimation techniques and data availability has motivated more structural empirical approaches, i.e., the combination of theoretical rationales and empirical work.
I am interested in the question of how patients and firms interact in the pharmaceutical market. The size of the pharmaceutical industry that constitutes about 1.7 percent of GDP in Germany and about 2.1 percent in the US (both 2009) is large enough to warrant extended analysis. In recent years, pharmaceutical markets have increasingly been in the focus of public attention due to demographic changes and broader health insurance coverage. The market is growing and pharmaceutical sales in 2013 were more than USD 800bn (in ex-factory prices). Studies generally find that pharmaceuticals add large benefits to the social welfare of societies. The extreme complexity of pharmaceutical markets makes it especially difficult to analyze them with traditional methods. In particular, this thesis focuses on questions of how demand- and supply-side regulations shape demand patterns and firms' strategies. Robust policy evaluations rely on careful studies of market conduct. Structural econometric models incorporate these market principles by modeling consumer behavior and firm strategies. Pharmaceutical products are experience goods and the matching process to find a suitable (or the best) treatment takes time and effort of patients and physicians. Patients and physicians as their agents are uncertain of the quality and efficacy of medical treatments or products. Consumers are risk-averse to receiving a low-quality product or a non-matching drug due to rather severe consequences. Typical risks of patients in pharmaceutical markets are bad health outcomes, such as no or low efficacy, or unintended severe side effects. Uncertainty about the characteristics of a product may sustain even after experiences with the product. For some drugs it takes time to reveal their curative power, and for some preventive medicines, e.g., for chronic diseases, the curative power might never be completely revealed. Imperfect information about drugs, heterogeneous responses to medical treatments, and risk-averse consumers result in high switching costs for pharmaceuticals. One consequence is relatively brand-loyal consumers. In particular, these demand-side characteristics have implications for cost-sharing policies and advertising regulations. I methodologically apply recent empirical techniques to analyze market interactions in imperfectly competitive pharmaceutical markets. Advances in econometrics -- in combination with structural assumptions from theory -- more and better data have made empirical industrial organization much more useful. For example, new tools for demand estimations have improved the analysis of market outcomes. I make use of a structural econometric modeling of demand and supply to unravel the impact of regulation in drug markets. Understanding consumer behavior and firm strategies is of particular importance in complex and heavily regulated markets like pharmaceuticals. On the demand side, I consider utility-maximizing patients who select treatments from a choice set of available drugs. Drugs are experience goods, the choice process is complex, and patients are heterogeneous, for example facing different cost-sharing (prices). Widespread (public) insurance coverage, moral hazard, and asymmetric information may not express the marginal benefits in health care demand curves. On the supply side, patent laws and federal regulation adds to the complexity of markets. Therefore, I assume Bertrand-Nash competition with differentiated products in therapeutic drug markets. The theoretical structure seems to be a good fit for off-patent molecules where originators compete with generic manufacturers. In Europe, originators also face competition for patented molecules by parallel imports. Therapeutic markets that are comprised of more than one molecule, either patented or off-patent, allow the patients to switch between molecules. Thus, the range of potential competition is large in many pharmaceutical markets. The supply side of the drug market is characterized by high (sunk) fixed costs for research and development and moderate costs of production, approval, and advertising. In particular the following chapters on parallel imports and the decision to advertise focuses on the outcomes of supply-side regulations. To empirically study pharmaceutical markets, I collect unique and detailed data. The backbone of this thesis are the market level data of three therapeutic drug markets, namely anti-diabetes, anti-epileptics, and Alzheimer's disease drugs. Those are comprised of products that were reimbursed by German public health insurances between January 2004 and December 2010. Price and sales data are available at the package level and at the level of daily doses, which allows comparing products with different active substances and presentations. Each drug is characterized by name, active substance, company name, package size, strength, defined daily dosages, and an indication of whether the drug was exempt from co-payments. Data is provided by, a private marketing and consulting firm, and extracted from their database. The richness of information allows demand estimations and simulations, which are the premises for estimating welfare effects. This product level database is merged with monthly firm-level direct-to-consumer advertising expenditures from. Advertising expenditures in euros include nationwide advertising in newspapers, journals, TV, radio, on billboards, and the internet. Advertising provides information on the strategic marketing behavior of firms. Furthermore, I collect epidemiological data of patients with diabetes in Germany from the German Diabetes Association and of patients with Alzheimer's disease from the German College of General Practitioners and Family Physicians and from the European Collaboration on Dementia Project. Additionally, I merge product level prices from Denmark to instrument for potentially endogenous prices. This approach assumes that prices in different geographical markets are driven by common cost drivers that are independent of country-specific demand shocks (Hausman-style instrumental variables). The prices of authorized pharmaceutical products in Denmark are publicly available. To study the effects of cost-sharing and to evaluate the policy of co-payment exemptions for comparatively low priced drugs, I collect quarterly product level data on co-payment exemptions from January 2007 to December 2010 from the Federal Association of Statutory Health Insurance Funds (FASHI) in Germany. This information is merged with a quarterly database on reference prices from the German Institute for Medical Documentation and Information (DIMDI). The final database contains prices, reference prices, and information on co-payment exemptions. The data covers 71.7 percent of all drug packages and 36.6 percent of all pharmaceutical expenses in Germany sold until the end of 2010. I analyze competition and regulation in pharmaceutical markets in the three following chapters. The second chapter is entitled Umbrella Branding in Pharmaceutical Markets. I investigate how advertising in the OTC drug market affects the decision to buy prescription drugs from a promoted brand, i.e., umbrella branding of pharmaceuticals. Pharmaceutical advertising is controversial and most governments restrict consumer-directed advertising of prescription drugs. Many firms offer a portfolio of prescription and non-prescription (over-the-counter or OTC) drugs and advertise the latter directly to patients due to fewer regulatory constraints. Exploiting the exogenous seasonality of OTC drug sales to identify a reduced-form estimation, I find significant positive effects of brand-name advertising on prescription drug sales. To explore the effect of consumer-directed advertising on firms' revenues and consumer surplus, I model discrete-choice demand with random coefficients and allow advertising spillovers as a product characteristic. Using monthly sales, prices, and advertising expenditures of Alzheimer's disease drugs in Germany, I find that patients value advertising positively. Sales increase with umbrella branding by 262k daily doses annually. In particular, generic manufacturers increase their annual sales with umbrella branding by 148k daily doses. Advertising spillovers are associated with a consumer surplus of EUR 2.3m and additional revenues of EUR 483k per year. The third chapter is a joint work with Tomaso Duso and Annika Herr and entitled The Welfare Impact of Parallel Imports: A Structural Approach Applied to the German Market for Oral Anti-diabetics. The study utilizes a large panel data set containing monthly information on sales, ex-factory prices, and further product characteristics for all 649 anti-diabetic drugs sold in Germany between 2004 and 2010. We estimate a two-stage nested logit model of demand and recover the marginal costs and markups based on an oligopolistic model of multi-product firms. We finally evaluate the effects of parallel imports policy by calculating a counter-factual scenario without parallel trade. According to our estimates, parallel imports reduce the prices for patented drugs by 11 percent and do not have a significant effect on prices for generic drugs. This amounts to an increase in the demand-side surplus of EUR 19 million per year (or EUR 130 million in total) which is relatively small compared to the average annual market size of around EUR 227 million based on ex-factory prices. The variable profits for the manufacturers of original drugs from the German market are reduced by EUR 18 million (or 37 percent) per year when parallel trade is allowed, yet only one third of this difference is appropriated by the importers. The fourth chapter is jointly written with Annika Herr and has the title Pharmaceutical Prices under Regulation: Tiered Co-payments and Reference Pricing in Germany. This study analyzes the pricing strategies of generic, brand-name, and importing firms after the introduction of price limits below which drugs are exempt from co-payments. The new regulation incentivizes patients to buy cost-efficient products and firms strategically decide to adjust prices to the exemption limit. The policy affects drugs regulated by reference prices in Germany. We employ quarterly data from that market from 2007 to 2010. Identification relies on a difference-in-differences approach, instruments that proxy for regulation intensity, and the fact that the exemption policy was introduced successively in selected therapeutic markets (reference price groups) during this period. Our results show that the new policy leads to an average price decrease of 4.9 percent for generics while brand-name firms increase prices by 6.4 percent. We refer to these results as the co-payment exemption paradox and show that firms differentiate their products even in highly regulated markets. Chapter 5 summarizes this dissertation and concludes. The progress in analyzing firms and consumers in various markets settings resulted in the award of the 2014 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Jean Tirole. This dissertation is meant to follow the two social responsibilities of the economists that Jean Tirole defined for the field of industrial organization: the rigorous analysis of how markets work and the participation in policy debate. In the future, new market dynamics will challenge the efficiency of existing regulation. For example, the arrival of new technologies in health care provision poses challenges for existing market regulations, i.e., the imitation of bio-pharmaceutical active ingredients. My dissertation aims at a better understanding of pharmaceutical markets to implement regulations that lead to efficient market outcomes and benefit consumers. | |||||||
| Lizenz: |  Urheberrechtsschutz | |||||||
| Fachbereich / Einrichtung: | Wirtschaftswissenschaftliche Fakultät | |||||||
| Dokument erstellt am: | 11.01.2016 | |||||||
| Dateien geändert am: | 11.01.2016 | |||||||
| Promotionsantrag am: | 17.11.2015 | |||||||
| Datum der Promotion: | 16.12.2015 |
