Treatment Effectiveness and Side Effects: A Model of Physician Learning

In this paper we study how treatment effectiveness and side effects impact the prescription decision of a risk-averse physician, and how detailing and patient feedback help reduce the physician's uncertainty in these two attributes in the erectile dysfunction category. To separately identify the impacts of effectiveness and side effects, we augment the observed prescription choices with unique data on self-reported reasons for switching in our estimation. Results show that the two new drugs Levitra and Cialis have higher mean effectiveness than the existing drug Viagra, but physicians have large uncertainty regarding the effectiveness for Levitra and side effects for Cialis. Detailing is effective in reducing the uncertainty for effectiveness but much less so for side effects. Based on the results, we investigate the roles of effectiveness and side effects in physicians' prescription choices, and the importance of detailing for new entrants in competing with incumbent drugs.

This paper was accepted by J. Miguel Villas-Boas, marketing.