Quality choice with reputation effects: Evidence from hospices in California (Job Market Paper)
Abstract: Hospices - firms that give palliative care to dying patients - form a large and growing industry in the US with significant implications for patient welfare and cost savings. Using data from California, I study how a hospice's quality choice is influenced by reputation concerns, and explore counterfactual policies to improve hospice quality. There is no price competition because Medicare pays hospices a fixed per-day rate for each patient, so hospices compete on reputation. A hospice's reputation is a stock of its past quality choices. Thus a hospice can build up its reputation stock over time by consistently choosing high quality. First I estimate a structural model of hospice choice by consumers, and find that hospice reputation has a strong effect on demand. Then I build a dynamic oligopoly model of hospices choosing quality to compete on reputation against rivals. This is used to recover the hospice cost function and conduct the following policy counterfactuals. As reputation becomes more persistent - for instance, through the creation of an online hospice rating system - hospices choose higher quality. Hospices also choose higher quality as Medicare prices increase, but the response depends on how differentiated they are in characteristics from rivals. Finally, a hybrid per-day per-visit hospice reimbursement scheme achieves the same quality with nearly 30% lower spending than the current per-day Medicare scheme.
Entry and pricing with fighting brands: Evidence from the pharmaceutical industry (with Rena Conti)
[Paper (preliminary and incomplete)] (Major revision with new results coming soon)
Abstract: Branded drug manufacturers often respond to generic entry by releasing an Authorized Generic (AG), which is chemically identical to the branded drug but without the brand label attached. This is used to price discriminate between consumers, with the branded drug charging high price and AG charging low price to compete with generics. Using total drug sales and revenue data on US for 2004-2016, we build a stylized structural model to study entry and pricing decisions. We estimate a random-coefficients discrete choice demand model and find significant heterogeneity in brand valuation and price sensitivity among consumers. Then we build a dynamic structural model of generic entry, AG release, and pricing. Combined with calibrated entry-cost parameters, this is used to conduct policy counterfactuals. First, we study the impact of various demand-side policies (such as improving consumer valuation of non-branded drugs and increasing price-sensitivity) on market outcomes. Second, we show that a faster generic approval rate leads to greater generic entry, lower likelihood of AG being released, and lower prices. Third, we find that banning AGs leads to greater generic entry but also higher industry prices overall.
Works in progress
Entry and product differentiation by primary-care clinics