Sara Fisher Ellison

Characteristics of Demand for Pharmaceutical Products: An Examination of Four Cephalosporins

We model demand for four cephalosporins and compute own- and cross-price elasticities between branded and generic versions of the four drugs. We model demand as a multistage budgeting problem, and we argue that such a model is appropriate to the multistage nature of the purchase of pharmaceutical products, in particular the prescribing and dispensing stages. We find quite high elasticities between generic substitutes and also significant elasticities between some therapeutic substitutes.

A Simple Framework for Nonparametric Specification Testing

This paper presents a simple framework for testing the specification of parametric conditional means. The test statistics are based on quadratic forms in the residuals of the null model. Under general assumptions the test statistics are asymptotically normal under the null. With an appropriate choice of the weight matrix, the tests are shown to be consistent and to have good local power. Specific implementations involving matrices of bin and kernel weights are discussed. Finite sample properties are explored in simulations and an application to some parametric models of gasoline demand is presented.

Gradual Incorporation of Information: Pharmaceutical Stocks and the Evolution of President Clinton’s Health Care Reform*

We examine the effect of the evolution of President Clintons health care reform proposal over January 1992–October 1993 on pharmaceutical stock prices. We identify a 52.3 percent decline in market‐adjusted prices, which we then associate with health care reform. Applying a new technique, isotonic regression, we find most of the decline occurred gradually. Much of the decline occurred as the Clinton plan adopted strategies to contain health care costs, including “managed competition” and implicit regulation. Indirect evidence suggests that the wealth lost by pharmaceutical companies may have been largely an anticipated transfer. Our results are relevant to understanding the likely effects of the Clinton plan and more recent proposals. Many other policy changes are marked by gradual public revelation of information, which may not be completely observable by a researcher. Our approach may uncover information about the anticipated effects of policies unavailable from a traditional event study.

ECONOMICS AND POLITICS: THE CASE OF SUGAR TARIFF REFORM*

We study Congressional voting on sugar tariff reform in 1912 to investigate theories of constituent influence on trade policy. In this setting, consumer interests enjoyed substantial political efficacy. Moreover, since a variety of producer interests competed in the political marketplace, we can evaluate which producer interests were most effective. We explore these issues by integrating two techniques drawn from economics and political science, overcoming some common problems encountered in political economy research. We first conduct an event study to ascertain the relative incidence and importance of legislative events. We then conduct a roll call regression on congressional votes to determine legislator responsiveness to different interest groups. We find that wealthy and concentrated groups, especially shareholders, were not influential. Large, unconcentrated groups, in particular beet sugar laborers and sugar beet and sugarcane farmers, were the most influential producer groups. Strikingly, these latter groups were created by prior protective tariffs.

Pharmaceutical Prices and Political Activity

Drug prices have been a conspicuous political issue in much of recent history, but no more so than during health care reform debates in 1993 and 1994. This paper investigates possible effects of political activity on pharmaceutical prices, with a particular focus on the health care reform period. It evaluates the extent to which pharmaceutical companies slowed the rates at which they increased prices in an attempt to preempt government intervention. To do so, we characterize companies based on their vulnerability to future price regulation. We then consider patterns in price movements across companies. The results suggest that companies whose drugs had longer patent lives and who had recently increased contributions to their corporate Political Action Committees (PACs) slowed price increases during 1992 and 1994 more than their competitors. It is difficult to distinguish pricing differences across companies in 1993, perhaps because most companies had pledged to keep price increases below the rate of inflation.

An Empirical Study of Pricing Strategies in an Online Market with High-Frequency Price Information

We study competition among a score of firms participating in an online market for a commodity computer component. Firms were able to adjust prices continuously; prices determined how the firms were ranked and listed (lowest price listed first), with better ranks contributing to firms’ sales. Using a year’s worth of hourly data for individual firms, we estimate a model of price adjustment, characterizing the factors driving price changes and measuring how much these factors differ across firms (i.e., strategy heterogeneity). We find evidence of managerial inattention as a cause of the price inertia observed in the market. Using separate estimates of the pricing model for groups of related firms, we simulate counterfactuals involving different mixes of these groups.

Costs of Managerial Attention and Activity as a Source of Sticky Prices: Structural Estimates from an Online Market

We study price dynamics for computer components sold on a price-comparison website. Our fine-grained data—a year of hourly price data for scores of rival retailers—allow us to estimate a dynamic model of competition, backing out structural estimates of managerial frictions. The estimated frictions are substantial, concentrated in the act of monitoring market conditions rather than entering a new price. We use our model to simulate the counterfactual gains from automated price setting and other managerial changes. Coupled with supporting reduced-form statistical evidence, our analysis provides a window into the process of managerial price setting and the microfoundation of pricing inertia, issues of growing interest in industrial organization and macroeconomics.

Search and Obfuscation in a Technologically Changing Retail Environment: Some Thoughts on Implications and Policy

Technologies, especially the Internet, have transformed how consumers search for products and prices. Price search has become cheap and easy and, therefore, ubiquitous, for many products. Just as technologies have made price search easier, however, they have increased incentives that firms have to obfuscate, or make price search harder. In this article, we focus on these actions that firms take and their effects on market participants. We discuss empirical evidence on this phenomenon, as well as its welfare impacts in the context of theories of search and obfuscation. Finally, we offer a framework for thinking about policy interventions based on this welfare analysis and outline some of the challenges facing policymakers.