Essays in Industrial Organization and Health Economics

Abstract

The unifying theme of this dissertation is the growing importance of pharmaceutical products in health care and in society more broadly. The first two chapters use structural and reduced-form models to study the effects of various policies on the choice and utilization of prescription drugs. The third chapter surveys the empirical literature on the competitive effects of a class of pricing arrangements used in the pharmaceutical and many other industries. Chapter 1. One of the criticisms leveled against direct-to-consumer advertising of prescription drugs is that it overemphasizes the use of pharmaceuticals at the expense of other forms of treatment. In “Choice of Depression Treatment: Advertising Spillovers in a Model with Complementarity,” I study how antidepressant TV ads affect demand for psychotherapy. Antidepressant advertising can increase demand for therapy if the products are complements or if advertising has spillover effects. To disentangle the different channels, I develop a discrete-choice demand model that allows for complementarity between products, advertising spillovers, and flexible unobserved preference heterogeneity. Individual-level panel data on treatment choices and price variation allow me to separately identify complementarity and correlated preferences, whereas the average price of TV advertising, used as an instrument, identifies the causal effect of antidepressant ads on demand for each product. The results indicate that even though antidepressants and psychotherapy are substitutes, drug advertising increases demand for therapy through a spillover effect. Allowing for time-invariant and time-varying unobservables that can be correlated across products critically affects the estimated degree of complementarity and advertising elasticities. Chapter 2. While prescription drugs have enabled the cost-effective treatment of a myriad of diseases, many pharmaceuticals come with potential for abuse. The growing use of opioid medications for chronic pain led to widespread misuse, addiction, and skyrocketing overdose death rates. In “Did Plain-Vanilla Prescription Drug Monitoring Programs Reduce Opioid Use? Evidence from Privately Insured Patients,” I explore whether prescription drug monitoring programs (PDMPs) with no registration or use mandates were effective in reducing the utilization of opioid prescription drugs. Exploiting the staggered introduction of such programs between 2008 and 2010, I use difference-in-differences to estimate their causal effect on the number of prescriptions, days supply, and dosage per capita. Based on data from privately insured adults, the estimation results reveal that PDMPs successfully reduced opioid utilization, especially of high-dosage prescriptions. A battery of robustness checks suggests that the estimated effects are caused by the PDMPs and not by confounding factors such as broader trends in health care, attrition, out-of-state purchases, or other anti-opioid policies. Chapter 3. The assumption that buyers pay the same price for each unit of the good they purchase underlies many economic analyses. However, linear pricing is one of many pricing arrangements used in practice. In “Empirical Evidence on Conditional Pricing Practices: A Review,” Julie Holland Mortimer and I review the existing empirical studies on the competitive impact of conditional pricing practices (CPPs), under which the price of a product may depend on a quantity, share, bundling, or other requirement. Examples of CPPs include all-units and loyalty discounts, full-line forcing contracts, and exclusivity arrangements. A common thread unifying the empirical literature is that CPPs often have both procompetitive and anticompetitive effects and that their net effect may depend on the details of the arrangements and the characteristics of the markets in which they are used.