Paper
A Structural Analysis of Detailing, Publicity and Correlated Learning: The Case of Statins
Published 2012 · H. Lim
1
Citations
0
Influential Citations
Abstract
When Lipitor, an anti-cholesterol drug (statin) of Pfizer, hit the market in 1997, Pfizer did not establish any direct evidence on its ability in reducing heart disease risks. Despite its lack of direct evidence, Lipitor became very successful. We define a variable, “efficiency ratio”, which measures how efficiently a drug can translate reduction in cholesterol levels into reduction in heart disease risks and allow the physicians’ initial prior perceptions on the efficiency ratio to be correlated across drugs. We assume that the physicians learn about the efficiency ratios from landmark clinical trials. Because of the correlated prior perceptions, new information on one drug can update physicians’ belief on other statins. The correlated learning may potentially allows late entrants to free-ride on the scientific evidence and informative marketing activities of the incumbents. In addition to using product level market share data, we supplement them with switching rates. The demand estimation literature using product level data usually ignore the possibility that patients may face switching costs. This could potentially lead to bias in parameter estimates. Unlike the previous literature, we take the presence of switching costs into consideration when we estimate our demand model by using switching rate data. Our estimation results suggest that there is information spill-over of landmark clinical trial results across drugs. Hence, Lipitor may gain late mover advantage by free-riding on the information provided by its rivals’ clinical trials. However, it is not the only driving force for its success. The fact that Lipitor is very effective in lowering cholesterol levels and its intensive detailing efforts also contribute to its success. Our counterfactual experiments also suggest that take-off of a new drug would be very fast in the absence of switching costs. For example, Lipitor would have become the best selling drug in the category right after its entry (Q2 1997) without switching cost.
Lipitor's success in lowering cholesterol levels and intensive detailing efforts are driven by information spill-over from rival clinical trials, but also by its effectiveness and intensive detailing efforts.
Full text analysis coming soon...