The Decision to Conduct a Head-to-Head Comparative Trial: A Game-Theoretic Analysis

Abstract

Recent Medicare legislation calls on the Agency for Healthcare Research and Quality to conduct research related to the comparative effectiveness of health care items and services, including prescription drugs. This reinforces earlier calls for head-to-head comparative trials of clinically relevant treatment alternatives. Using a game-theoretic model, the authors explore the decision of pharmaceutical companies to conduct such trials. The model suggests that an important factor affecting this decision is the potential loss in market share and profits following a result of inferiority or comparability. This hidden cost is higher for the market leader than the market follower, making it less likely that the leader will choose to conduct a trial. The model also suggests that in a full-information environment, it will never be the case that both firms choose to conduct such a trial. Furthermore, if market shares and the probability of proving superiority are similar for both firms, it is quite possible that neither firm will choose to conduct a trial. Finally, the results indicate that incentives that offset the direct cost of a trial can prevent a no-trial equilibrium, even when both firms face the possibility of an inferior outcome.