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Markups on Drop-Downs: Prominence in Pharmaceutical Markets∗

Hauschultz, Frederik Plum and Munk-Nielsen, Anders (2020): Markups on Drop-Downs: Prominence in Pharmaceutical Markets∗.

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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.

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