Price Dynamics of Swedish Pharmaceuticals
[Rising Star Session, EARIE 2018]
[Best Paper Award, RGS Doctoral Conference in Economics 2018]
This paper investigates price patterns of off-patent pharmaceuticals in Sweden. I show that price dynamics are dependent on the number of competitors. For example, manufacturers who are the only supplier of a substance do not vary their prices. In oligopolies with two or three suppliers, firms occasionally rotate their prices in a symmetrical fashion. In markets with more than three suppliers, the cheapest firm often increases its price in the next month. The price patterns follow predictions from a model of dynamic price competition, where the demand for pharmaceuticals incorporates the known biases of consumers: habit persistence and brand preferences.
Work in Progress:
Switching Costs, Quality Misconceptions and Behavioral Pricing in the Pharmaceutical Market
[Job Market Paper]
This paper examines the reasons for the market power of branded prescription drugs faced with generic competition. Using prescription-level and matched socioeconomic data that cover the entire Swedish population between 2010 and 2016, I show the decisive role of switching costs and quality misconceptions. First, I identify switching costs by utilizing the panel of drug purchases on the individual level as well as exploiting consumption surrounding patent expirations. Second, I establish quality misconceptions. Comparing the purchases of patients with and without medical education, I control for real quality difference. Inattention due to information costs on the part of consumers has been suggested as a reason for market power, something which the Swedish institutional setting allows me to rule out. I estimate a demand model and quantify switching costs to be 10% of the average price. Applying a dynamic oligopoly model with forward-looking firms, I recover cost estimates using a two-step estimator. I evaluate the impact of behavioral frictions on pricing in two counterfactual scenarios: Increasing the length of procurement contracts reduces the impact of switching costs. The procurement policy increases prices by 6.6% and patients’ costs by 4.2% as moderate switching costs decrease competitive pressure. If everyone acts as a physician and therefore experience less misconceptions, prices would fall by 11.9% and patients’ costs would decrease by 13.8%.
Do District Elected Members of the Parliament favor their District or their Party? A Textual Analysis of Parliamentary Speeches using Machine Learning.
(Together with Andreas Born)
This paper uses a discontinuity in the mixed member proportional system of the German parliament to quantify the causal effect of a district election on the conformity to the party line. An election by a district does not affect a roll call voting behavior causally mostly due to a strong adherence to party voting. We use textual analysis to analyze parliamentary speeches. Speeches of district-elected members of parliament do not differ, in terms of cosines-distance, from those of their party-peers who have been elected through closed party lists. To build a measure of closeness of a speech to a party, we train a classifier on the party manifestos to predict the probability that a parliamentary speech belongs to a certain party. The predicted likelihoods provide us with a measure of closeness of the MPs’ speeches to their own party’s manifesto. At the discontinuity, district elected candidates do not use a wording closer or further away from the party’s manifesto. In conclusion, a district election does not influence an MP’s adherence to the party line causally.
Obfuscation and Rational Inattention
(Together with Johannes Kasinger)