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Physician-Industry Interactions: Persuasion and Welfare

Matthew Grennan, Kyle Myers, Ashley Swanson, Aaron Chatterji

NBER Working Paper No. 24864
Issued in July 2018
NBER Program(s):The Health Care Program, The Health Economics Program, The Industrial Organization Program

In markets where consumers seek expert advice regarding purchases, firms seek to influence experts, raising concerns about biased advice. Assessing firm-expert interactions requires identifying their causal impact on demand, amidst frictions like market power. We study pharmaceutical firms' payments to physicians, leveraging instrumental variables based on regional spillovers from hospitals' conflict-of-interest policies and market shocks due to patent expiration. We find that the average payment increases prescribing of the focal drug by 73 percent. Our structural model estimates indicate that payments decrease total surplus, unless payments are sufficiently correlated with information (vs. persuasion) or clinical gains not captured in demand.

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Document Object Identifier (DOI): 10.3386/w24864

 
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