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Side Effects of Competition: the Role of Advertising and Promotion in Pharmaceutical Markets

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  • Guy David
  • Sara Markowitz

Abstract

The extent of pharmaceutical advertising and promotion can be characterized by a balancing act between profitable demand expansions and potentially unfavorable subsequent regulatory actions. However, this balance also depends on the nature of competition (e.g. monopoly versus oligopoly). In this paper we model the firm's behavior under different competitive scenarios and test the model's predictions using a novel combination of sales, promotion, advertising, and adverse event reports data. We focus on the market for erectile dysfunction drugs as the basis for estimation. This market is ideal for analysis as it is characterized by an abrupt shift in structure, all drugs are branded, the drugs are associated with adverse health events, and have extensive advertising and promotion. We find that advertising and promotion expenditures increase own market share but also increase the share of adverse drug reactions. Competitors' spending decreases market share, while also having an influence on adverse drug reactions.

Suggested Citation

  • Guy David & Sara Markowitz, 2011. "Side Effects of Competition: the Role of Advertising and Promotion in Pharmaceutical Markets," NBER Working Papers 17162, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17162
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    Cited by:

    1. Kenkel Don S. & Wang Hua, 2013. "The Economics of Personalization in Prevention and Public Health," Forum for Health Economics & Policy, De Gruyter, vol. 16(2), pages 53-71, June.

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    More about this item

    JEL classification:

    • I0 - Health, Education, and Welfare - - General
    • K0 - Law and Economics - - General
    • K2 - Law and Economics - - Regulation and Business Law

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