The Dynamics of Competitive Drug Detailing

The pharmaceutical industry spends more funds on drug detailing than on any other marketing instrument. Similar to the effect of advertising, the impact of detailing ex-penditures spills over beyond the current period. We expect forward-looking firms to observe this carry-over effect and adopt a dynamic approach to determine optimal de-tailing levels by maximizing their long-term profits. We develop a structural model of dynamic oligopoly competition to analyze firms ’ scheduling of detailing over time and to estimate detailing costs consistent with such scheduling. The model is estimated us-ing a recently developed two-stage method. In the first stage, physician-level demand is estimated in a hierarchical Bayesian framework. Further, using a semi-parametric ap-proach, we estimate physician-level policy functions that describe each firm’s observed detailing actions, also in a hierarchical Bayesian framework. In the second stage, costs of detailing are estimated assuming that the observed detailing data are consistent with a Markov perfect Nash equilibrium. Our estimated demand model shows evidence of supersaturation at high levels of detailing stock. The estimated policy functions sho