Read on Twitter
New work with @ShaneFs5cents @boukekt & Nick Adolph: "Discounts Shift the Demand Curve for Life-saving Medications". We find huge effects of discounts on drug demand—patients are more likely to buy a drug when discounted to $10 than at $10 to begin with
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3725906
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3725906
Lab work has shown people love discounts, which @R_Thaler explains in terms of transaction utility—the value of the deal. But, transaction utility has been hard to identify in field studies. There are two main reasons for this:
First, it's usually impossible to charge the same price pre & post discount for the same good at the same time. Second, typically when consumers decide not to make a purchase, their data are missing and who knows if they were actually a potential buyer.
Prescription medications are special on both fronts: pricing for pharmaceuticals is very flexible, so there are cases where people pay the same final cost w and w/out discount. And prescriptions are, well, prescribed so we know when someone should have made a purchase but didn't.
Now the causal inference: our identification strategy relies on patient-drug-price-year fixed-effects: the same person buys the same drug at the same price in the same year, but does so w and w/out a discount (e.g., pays $10 with no discount and later $10 after a $5 discount)
We find a 1.4 percentage point increase in demand, and given that 11% of people abandon their prescriptions, that means we estimate 13% of people who would have left their heart medication at the pharmacy at $10 buy that same medication if it was discounted from $15 to $10. Wild.
If you get far enough into the paper, you'll find a curious asymmetry in gaining vs losing discounts. And if you make it that far, please let us know what you think ([email protected]). We're eager to get feedback on our identification strategy.
