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Longitudinal Study on the Performance of U.S. Pharmaceutical Firms: The Increasing Role of Marketing

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  • Pattikawa, L.H.

Abstract

Nowadays, the U.S. pharmaceutical industry has been under thorough scrutiny. Popular press claims of intensive marketing activities that go beyond R&D, the strong increase of me-too drugs, and, at the same time, the high industry profitability have contributed to public skepticism. Despite this increasing role of marketing, studies on the profitability of pharmaceutical firms mainly focus on the role of R&D. In this paper, we investigate the impact of advertising and product differentiation on pharmaceutical firms’ market value over the period 1971-2005. Especially, we examine whether there has been a change in the pattern of returns in these variables over this period. Our results show that, nowadays, pharmaceutical firms’ performance is not only closely linked to their R&D activities but also to marketing activities such as advertising and product differentiation. Since the 1990s, the return of advertising has become three times larger than that of R&D. In addition, we found that the impact of product differentiation came largely from the introduction of the so called incrementally modified drugs (IMD). The vast increase of the number of IMDs since the 1990s is likely to contribute to this development. Our results emphasize the role of advertising and product differentiation in the virtuous rent-seeking behavior in the pharmaceutical industry.

Suggested Citation

  • Pattikawa, L.H., 2007. "Longitudinal Study on the Performance of U.S. Pharmaceutical Firms: The Increasing Role of Marketing," ERIM Report Series Research in Management ERS-2007-020-STR, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    • Handle: RePEc:ems:eureri:9400
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    References listed on IDEAS

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    More about this item

    Keywords

    Advertising; Market value; Marketing; Panel data; Pharmaceutical industry; Product differentiation;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • M - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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