Essays in Industrial Organization and Health Economics

Abstract

This dissertation addresses questions in the pharmaceutical and medical device industries. In the first chapter, I study the welfare effects of price discrimination in the medical device industry. In the second chapter, I document shifts in the marketing and prescription behavior for a drug after it is acquired. In the third chapter I study the reputation spillover effects of a major medical device recall. Chapter 1: Implantable medical device manufacturers are able to directly price discriminate by setting different prices for the same product in different hospitals. I analyze the welfare effects of this form of price discrimination in the case of Implantable Cardioverter Defibrillators (ICDs). I find that if ICD manufacturers were forced to switch to uniform pricing, prices increase on average, which causes a decline in hospital welfare and manufacturer profits. Allowing manufacturers to indirectly price discriminate by strategically delaying the exit of old products to target their elastic consumers can cause an increase in product variety, which can lead to different welfare predictions. If we fail to account for a manufacturer's ability change their product offerings in response to a uniform pricing policy, we can overestimate the effects of uniform pricing on hospital welfare, underestimate the effect of uniform pricing on the take up of older, lower quality products, and we may overestimate or underestimate the effects of uniform pricing on manufacturer profitability. Chapter 2: In this chapter, Motaz Al-Chanati and I document novel evidence of a shift in marketing and prescription behavior for a drug after its acquisition. Network size is highly relevant for this industry, as advertising to physicians (known as detailing) typically involves in-person meetings between sales representatives and physicians. We use 10 drug acquisitions in 2015-2016 to document patterns in the data consistent with firms leveraging their existing physician-sales representative networks to market a drug after they acquire it. We also show that this shift in marketing strategy translates into prescription behavior, i.e. after a drug is acquired, physicians that have prior relationships with the acquiring firm increase their prescriptions of it. Chapter 3: I analyze the effects a major product recall in the implantable medical device industry on the sales of other products manufactured by the recalling firxm. I find that after the recall, consumers substituted away from the recalling firm's other products that were not recalled, and toward the products of the recalling firm's rivals. I also quantify the heterogeneity in the response to this recall based on two consumer characteristics: firm loyalty and exposure. I construct proxies for these characteristics, and I find that while consumers that were more exposed to the recall did not have a significantly different response to it, consumers that were more loyal to the recalling firm had smaller responses to it.