An Empirical Model of Drug Detailing: Dynamic Competition and Policy Implications

The practice of detailing in the marketing of prescription drugs is undergoing significant changes. For instance, in September 2013, the Physician Payment Sunshine Act went into full effect. The accompanying transparency requirements have prompted physician practices and hospitals to severely restrict pharmaceutical sales representatives’ direct access to their physicians. Despite all the attention in the popular press, scant scholarly research has investigated how these restrictions on physician access impact physician prescription behavior and competitive detailing to physicians. To analyze the impact of these restrictions, we develop a structural model of how pharmaceutical firms compete dynamically to schedule detailing to physicians. Detailing activities are known to have significant carryover effects that are captured in a first‐stage model of physicians’ demand for prescription drugs. We also specify detailing policy functions that describe each firm’s observed detailing actions. In a second stage, we estimate a model that describes costs of detailing, assuming that the observed detailing levels are consistent with a Markov perfect Nash equilibrium. The estimated structural model is used to examine the implications of restrictions on the amount of detailing via counterfactual simulations. We find that restriction policies would increase the market share of a nondrug‐treatment‐only option but impact firms asymmetrically; firms that are strong in detailing and/or rely more on detailing would be hurt more. Unexpectedly, a policy that imposes a ceiling on detailing frequency could significantly reduce detailing of all firms in the market, including those firms with average detailing levels below the ceiling, and effectively would soften competition between firms and enhance their profits. This paper was accepted by J. Miguel Villas‐Boas, marketing.