Modeling the Effects of Promotional Efforts on Aggregate Pharmaceutical Demand: What We Know and Challenges for the Future - Innovation and Marketing in the Pharmaceutical Industry - page 597

coverage and the value of co-payments. In the United States, insurance coverage
determines whether the infl uence of price is direct or indirect. People without health
insurance experience a direct price effect, because they must pay for their prescribed
products themselves. Consumers with health insurance experience an indirect infl u-
ence of the price of the product through the co-payments they have to make.
Co-payments generally vary across the different brands in a product category, as
well as between the different brands and generic equivalents. The preferred status of
certain products, as determined by an insured consumer's health plan, determines
the co-payment levels, and generic products usually require lower co-payments than
brands (Manchanda et al. 2005 ). We thus assume that consumers who are insured
are indirectly infl uenced by price, because the level of co-payments tends to relate
to the retail price level. Haaijer-Ruskamp and Denig ( 2001 ) also fi nd that situational
features moderate the effect of the price level: in the case of serious or acute
illnesses, price has only a minor infl uence.
The decision making agent is the physician and Gönül et al. ( 2001 ) fi nd that
considerations about drug effi cacy and patients' conditions represent the primary
drivers in the decision process, clearly overriding price concerns. Hence physicians,
working in the interest of their patients, do not have a fi nancial stimulus to be price-
sensitive, and they tend to be unaware of the retail price of specifi c drugs (Hurwitz
and Caves 1988 ).
There is little consensus about the price elasticity of demand. Some authors fi nd
absolute price elasticities larger than one, so that the demand for pharmaceutical
products can be classifi ed as price elastic (e.g., Chintagunta and Desiraju 2005 ;
Rizzo 1999 ), others fi nd (much) smaller price effects (De Laat et al. 2002 ; Narayanan
et al. 2005 ; Windmeijer et al. 2006 ), and some fi nd no signifi cant effects of price
(Leefl ang and Wieringa 2010 ; Shankar 1997 , 2009 ; Vakratsas and Kolsarici 2008 ).
Rosenthal et al. ( 2003 ) even fi nd positive and signifi cant price coeffi cients, but
claim that this is due to the fact that the price variable is measured with error and
that it has no close relationship with co-payments.
The studies in Table 20.1 suggest several possible moderators for the apparent
heterogeneity in price sensitivity. Some studies fi nd product-specifi c differences in
price sensitivity (Chintagunta and Desiraju 2005 ; Rizzo 1999 ) and this might be
related to formulary coverage (Gonül et al. 2001 ). Prices reportedly rise over the
product life cycle, with lower price sensitivity later in the cycle (Bhattacharya and
Vogt 2003 ).
Chintagunta and Desiraju ( 2005 ) also conclude that market characteristics
moderate price sensitivity. They fi nd signifi cant differences in price levels and price
sensitivity for the same product across different geographic markets due to variation
with respect to price regulation and insurance coverage. Another market character-
istic that affects price sensitivity is the presence of generics. The effects of generic
entry on pricing depend on the degree of regulation in the country and the price (in-)
elasticity of demand before generic entry. The possible level effects range from
decreasing to increasing prices (Danzon and Chao 2000 ). Generics might lower the
average price level of products with the same active ingredients, because they
increase competition (Manchanda et al. 2005 ). Some authors fi nd price increases