PAYMENTS, PROMOTION, AND THE PURPLE PILL
Article first published online: 20 OCT 2013
Copyright © 2013 John Wiley & Sons, Ltd.
Volume 24, Issue 1, pages 86–103, January 2015
How to Cite
2015), PAYMENTS, PROMOTION, AND THE PURPLE PILL, Health Econ., 24, 86–103, doi: 10.1002/hec.3005(
- Issue published online: 8 DEC 2014
- Article first published online: 20 OCT 2013
- Manuscript Accepted: 10 SEP 2013
- Manuscript Revised: 6 JUL 2013
- Manuscript Received: 23 MAY 2012
Understanding competition in the US drug market requires knowing how sensitive demand is to prices. The relevant prices for insured consumers are copayments. There are many studies of copayment elasticity in the health literature, but they are of limited applicability for studies of competition. Because of a paucity of data, such studies typically control for neither competitor copayment nor advertising. Whereas previous studies examined copayment sensitivity when copayments for branded drugs move in unison, this study examines copayment sensitivity when copayments diverge. This study uses unique panel data of insurance copayments and utilization for 77 insurance groups, as well as data on advertising. The results indicate that demand can be much more sensitive to copayment than previously recognized. Manufacturers selling drugs with higher copayments than branded competitors can lose substantial market share. Manufacturers can offset the loss of demand by increasing advertising to physicians, but it is costly. Copyright © 2013 John Wiley & Sons, Ltd.