This article examines the welfare impact of imperfect competition in the Medicare supplement insurance (Medigap) market. Two firms control nearly three fourths of the Medigap market, and premiums exceed claims by over 25%. I find that a low price elasticity and consumers' brand preferences lead firms to engage in substantial marketing and price above cost. Therefore, the strategic behavior of insurers facing relatively inelastic demand is critical in explaining poor market performance. I also find that insurers do not capture all of the rents in this market; rents also accrue to actors who perform marketing functions, including agents and brokers.

We measure the impact of direct-to-consumer television advertising (DTCA) by drug manufacturers. Our identification strategy exploits shocks to local advertising markets generated by idiosyncrasies of the political advertising cycle as well as a regulatory intervention affecting a single product. We find that a 10% increase in the number of a firm's ads leads to a 0.76% increase in revenue, while the same increase in rival advertising leads to a 0.55% decrease in firm revenue. Results also indicate that a 10% increase in category advertising produces a 0.2% revenue increase for non-advertised drugs. Both the business-stealing and spillover effects would not be detected through OLS. Decomposition using micro data confirms that the effect is due mostly to new customers as opposed to switching among current customers. Simulations show that an outright ban on DTCA would have modest effects on the sales of advertised drugs as well as on non-advertised drugs.

Bob Town, and seminar participants at Stanford, UCSB, and the ASSA meetings for helpful comments. The views expressed in this paper are solely those of the authors and do not necessarily represent the views of the institutions or other individuals mentioned above, nor of the National Bureau of Economic Research. All errors are our own. Boris Vabson acknowledges funding from the NBER Pre-Doctoral Research Fellowship in Disability Policy, through #1 DRC12000002-01-00. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Bob Town, and seminar participants at Stanford, UCSB, and the ASSA meetings for helpful comments. The views expressed in this paper are solely those of the authors and do not necessarily represent the views of the institutions or other individuals mentioned above, nor of the National Bureau of Economic Research. All errors are our own. Boris Vabson acknowledges funding from the NBER Pre-Doctoral Research Fellowship in Disability Policy, through #1 DRC12000002-01-00. NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

We examine heuristic decision rules in consumer choice on health insurance exchanges using data from the Massachusetts Connector. Consumers may have difficulty making optimal choices in a complex environment. The heuristic “choose the cheapest plan” is suggested by the decision context, previous research, and the data: about 20% of enrollees choose the cheapest plan possible. We find evidence of this heuristic in many models, but while heuristics may play a role, preference heterogeneity is also important. Our most flexible models find an insignificant heuristic effect. In part because holding context fixed, this heuristic is observationally equivalent to extreme price sensitivity.