Markups on Drop-downs: Prominence in Pharmaceutical Markets

Abstract

We study the effect of product prominence in consumer search on demand and equilibrium prices using data from Danish pharmaceutical markets. Variation in prominence comes from alphabetical ordering in physician IT systems. We find that both prescriptions, prices, market shares and revenue decrease in alphabetical rank. We estimate a structural ordered search model which confirms that physicians actively search. They react to patient expenditures, albeit less than patients, and increase search effort for low-income and female patients. Sorting products by price would reduce equilibrium expenditures by 5%, which is more than a removal of search frictions would achieve.

Anders Munk‑Nielsen

Associate Professor of Economics

I do research in Empirical Industrial Organization