The implications extend beyond pharmaceuticals. Think soda or alcohol taxes. If firms can re-optimize promotional effort across their product lines, targeted policies may miss their mark.

Read the full paper here:
papers.ssrn.com/sol3/papers....

This matters for policy as the indirect effects may undermine the goals of targeted pricing policies. What appears to be a simple price cut can reshape how drugs are promoted and the information available to physicians.

We provide empirical evidence that pharmaceutical firms respond strategically. They reduce promotional payments to physicians for drugs facing the largest discounts and increase promotion for others that remain more profitable.

The 340b program requires drug manufacturers to grant steep discounts on drugs to qualifying hospitals. The design of the program causes discounts to vary across drugs, creating incentives for firms to reallocate promotional efforts across their drugs rather than uniformly reduce

In my Marketing Science paper, I further show that smaller retailers are more likely to distort assortments to gain leverage in contract negotiations. Without scale, assortment control is a key tool for securing preferential contracts from suppliers.
Link to paper: 
papers.ssrn.com/sol3/papers....